Stock Markets Bombing!

mike_the_bike_2

green1970 wrote: »

Mortgage lending in this country is very, very responsible. I don't know if the same could be said for secured loans, unsecured loans and credit cards but mortgage lending in the main is excellent in this country. It's when people take out the other stuff that they get into trouble, hence the increase in repos. That is what will do the damage in my opinion, not dodgy mortgages.

Sorry Green1970 I don't think you really are in touch with what has really been going on. I know of at least 5 people in my locality that have self certified mortgages where they have shall we say been "economical with the truth" and have loans of about 5.5 times their true income!...They were told to put this on the form by their "financial advisor"

PosterBoy77

green1970 wrote: »

Again, with self-certification, there's usually a 15% deposit as security, coupled with the fact that prices have gone up in the past few years to give even more of a cushion there.

Lenders could have helped with the self-cert thing as they could be more flexible in today's job market about which incomes they can use when assessing how much someone can afford.

As a for instance, lenders traditionally a basic salary and apply a multiple to that to come up with a maximum loan. So going back to late 80s, if I had a salary of £14000 (net of £900 per month), I could borrow 3 times that so £42000 which, at 15.4% variable, came to about £450 a month, nearly 50% of my salary.

Nowadays, let's say I have a child and have a £20k basic salary and on top of that I get an attendance allowance, unsociable hours and very regular overtime of £6k, plus Working Family/Child Tax Credit, Child Allowance (£1600 per month). Say I have a good 15% deposit and want to borrow £130,000 on a nice 10 year fixed rate of 5.7% with monthly repayments of around £650) - lenders don't tend to touch that with a bargepole despite it being much more affordable (and stable due to the security of the fixed rate). Yet if I self-certify my income at £30k (which is my salary plus the rest of the stuff grossed up accordingly) which is no lie, I can get the mortgage I can afford.

I don't doubt that self-cert has been abused so that people can get the house they want, yet who takes out a mortgage they knowingly cannot afford, that would be madness. The key to mortgage lending nowadays is affordability, the mortgage intermediary as part of the FSA regulation has to check that the net income you declare is reasonable and sustainable so that there's less room for abuse.

Now if we had self-cert 100% mortgages for people who are bad payers, then that would be irresponsible which is why it doesn't exist. I truly do believe mortgages aren't the problem in this country, it's the other easy lending on top that does the damage.

A mortgage at 5 times my salary at a nice fixed rate is more affordable than a mortgage at 3 times my salary at a high variable rate when houses were a third of the price they are now.

It is people like you who are in complete denial! Many people have borrowed beyond what they should have done, hoping to earn more in future.

Many banks have encouraged customers to lie about income, just to get the customer.

The problem in the US is not really caused by sub-prime any longer - it is caused by house prices falling and people who have mortgages worth more than their properties now refusing to pay, moving out and renting, letting the banks foreclose. Who in their right mind is going to bust a gut paying for a mortgage as their house is loosing value?

These problems will arrive here sometime soon. The UK is not somehow immune, especially as we have the most indebted individual finances in the world.

One last thing. You are wrong about it being better to have a large mortgage at a low rate of interest, than a small one at a high rate. The latter one is better, as paying of the capital is far easier - it is just more claptrap that is peddled by the banks and government, as most people are too dumb to do the maths.

WTF?_2

mikael wrote: »

It is people like you who are in complete denial! Many people have borrowed beyond what they should have done, hoping to earn more in future.

Many banks have encouraged customers to lie about income, just to get the customer.

The problem in the US is not really caused by sub-prime any longer - it is caused by house prices falling and people who have mortgages worth more than their properties now refusing to pay, moving out and renting, letting the banks foreclose. Who in their right mind is going to bust a gut paying for a mortgage as their house is loosing value?

These problems will arrive here sometime soon. The UK is not somehow immune, especially as we have the most indebted individual finances in the world.

One last thing. You are wrong about it being better to have a large mortgage at a low rate of interest, than a small one at a high rate. The latter one is better, as paying of the capital is far easier - it is just more claptrap that is peddled by the banks and government, as most people are too dumb to do the maths.

Well said.

One thing that is different about the US though is that apparently in many states (not all), you literally can just give the keys back to the lender and walk away. If the house doesn't pay the balance of the mortgage loan they can't take further action.

In the UK, the lender sells the house and then pursues you for any shortfall.


I guess this may give UK lenders a bit of an advantage over the US. But I can see this becoming very bloody once prices start to tumble.

The key thing is that although you can leverage your investment to make big profits with housing in a rising market, once you are in negative equity territory your potential losses are also leveraged.

With shares, you can only lose what cash you put in. With a mortgage you could lose anything up to the full value of the borrowed amount plus interest and fees, depending on how much you can flog the house for after reaching the point where you can't pay the mortgage.

Fergie73

Dodgy lending in the UK is nowhere near as bad as the US, mortgages have been heavily regulated by the FSA for nearly 3 years and prior to that, the voluntary regulation by the MCCB was as tough.

I have a feeling the UK is far worse than the US. Our property bubble is bigger, for one thing. If you think there's no dodgy lending or sub-prime, just have a look at the advertising pages of any tabloid. They're full of dodgy sounding finance companies offering loans to people about to be reposessed, with bad credit records, unemployed etc.

Self Cert has caused obvious problems, as have interest only mortgages.

Also, the FSA only regulated some mortgages. Buy to Let are unregulated, and there's undoubtably been massive fraud, mis-selling and bad lending in that sector.

dunnomate

I still think the sadistic MPC will raise rates to 6% next month - they cannot resist another hike. I wonder how many of them have mortgages ???!!!!

CheeseOnToast

I thought they were but now I think they're going to hold

WTF?_2

dunnomate wrote: »

I still think the sadistic MPC will raise rates to 6% next month - they cannot resist another hike. I wonder how many of them have mortgages ???!!!!

What's 'sadistic' about raising interest rates? They have to protect against inflation, which will absolutely screw up the whole economy for everyone.

If that hits people who have stupidly borrowed beyond their means to comfortably repay, too bad. They should have figured out that they'd have to repay their borrowings with interest and made sure that they could afford to do so with their income, allowing for a possible 1-2% rise in interest rates.

Bear in mind that rates have been at all time lows. Even 6% is actually very low by historical standards. If such a low rate is causing trouble, it's the fault of the borrower and not the central bank who has to managed the economy.

Looks like people really have become addicted to cheap and easy credit. Too bad it's all about to dry up and it's absolutely nothing to do with the central banks.

hethmar

People have been talking about a housing price crash for at least 5 years now - it hasnt. The truth is we have a limited number of houses and we are allowing literally millions of extra people into this country. How can prices drop dramatically when the demand is bigger than the supply?

Generali

hethmar wrote: »

People have been talking about a housing price crash for at least 5 years now - it hasnt. The truth is we have a limited number of houses and we are allowing literally millions of extra people into this country. How can prices drop dramatically when the demand is bigger than the supply?

Because demand isn't the number of people that want something. Demand is the number of people willing and able to buy something at any given price. As you move up the demand curve (i.e. as prices rise) for most goods and services, houses included, people drop out of the market for 2 reasons, because they can't pay the price requested by the seller or because they won't.

If (when?) the current credit squeeze means that banks won't lend borrowers high multiples of their salaries or grant 100% mortgages then buyers will be forced out of the market because they can't bid. That is demand falling. As that happens, prices of houses will start to fall as demand falls.

sm9ai

hethmar wrote: »

People have been talking about a housing price crash for at least 5 years now - it hasnt. The truth is we have a limited number of houses and we are allowing literally millions of extra people into this country. How can prices drop dramatically when the demand is bigger than the supply?

Easy. Look at this scenario.

Customer: goes to a bank, I want a mortgage please at 5x my income.
Bank: Sorry due to recent losses we will only lend you 3x your income.
Customer: But then I can't afford my 1 bed shoe box.
Bank: Not our problem, thats all your getting.

Etc etc repeated at every single bank - and you can't go to Northern Rock as they have gone bankrupt (near future here!).

Now if banks only lend 3/5's of what they did what will happen to house prices?