Skipton to offer 100% mortgages

jimjames

ACG said:

Negative equity only becomes an issue if you are trying to sell. People do not usually plan to buy and then sell within 5 years, at which point I would assume any house price drops would have probably recovered/mostly recovered. 

It really depends. The drop from 1989 onwards hadn't recovered until early 2000s. That's a long time to not be able to move

lojo1000

ACG said:

lojo1000 said:

ACG said:

lojo1000 said:

I don't think the government should allow anything over 50% debt/equity when buying a house.

Prices would fall to a new equilibrium and from there the financial risk would be lower on both the buyer and the lenders.

It wouldnt though. 

It would reduce house prices, but then you have more people who can afford them. 
Then you have more people who are unhappy about the amount of deposit needed.  

You also have more people having to wait until they can buy homes, putting more pressure on rental properties and in turn... putting rent up. 

"It would reduce house prices, but then you have more people who can afford them." - that's the objective, more people can afford them without getting into excess debt.

"Then you have more people who are unhappy about the amount of deposit needed. " - I can live with some unhappy people who want to borrow more since prices will be lower, the interest paid will be less and financial risk to the buyer, bank and taxpayer will be less.

"You also have more people having to wait until they can buy homes, putting more pressure on rental properties and in turn... putting rent up. " - if rents go up whilst house prices are coming down then the yield is increasing significantly creating an incentive to add supply to the rented sector.

Allowing 100% mortgages is reflective of the issue that house prices are too high relative to incomes. There is not enough income to generate the wealth needed to buy a house without borrowing from the future.

More people can afford them, but no more people can get them as there are no more homes. There is no incentive for developers to build them as there is less profit... which means lower wages to the trades because there are less jobs. 

YOU can live with some happy people. Great. So long as you can live with it, forget all of the unhappy people? 

If rents go up, landlords buy more property because they can afford to go to a higher price and still put down a 50% deposit because then they can charge more rent as there are less homes for homeowners. Landlords are unlikely to build more homes, why would they? It would cost more to build than it would to buy. 

There's been a 25% increase in dwellings in last 30 years vs 21% increase in population.
https://www.gov.uk/government/statistical-data-sets/live-tables-on-dwelling-stock-including-vacants
https://www.worldometers.info/world-population/uk-population/

House prices are up 400% over that same period.

House price increases are due to more debt - nominal housing stock has increased and increased per capita.

"YOU can live with some happy people. Great. So long as you can live with it, forget all of the unhappy people? "

You cannot make everyone happy. Many cannot afford houses now and allowing them to borrow more simply compounds the issue for those that follow.

"It would cost more to build than it would to buy. "

Not sure of your logic here since there would be an initial reset in price across the industry and economy including input costs.

Put simply, people seem willing to take more and more financial risk, encouraged by govt policy to spur housing demand and the fallacy that higher house prices are good for the economy. That is not a sustainable path and will end in another economic collapse.

mi-key

lojo1000 said:

I don't think the government should allow anything over 50% debt/equity when buying a house.

Prices would fall to a new equilibrium and from there the financial risk would be lower on both the buyer and the lenders.

What a stupid idea. What it would do is price out 95% of FTBs as who is going to have a 50% deposit. It wouldn't make house prices fall massively ( despite your hopes ) because people wouldn't be able to afford to sell their house at a huge loss, so you would just end up with even less housing available. 

lojo1000

mi-key said:

lojo1000 said:

I don't think the government should allow anything over 50% debt/equity when buying a house.

Prices would fall to a new equilibrium and from there the financial risk would be lower on both the buyer and the lenders.

What a stupid idea. What it would do is price out 95% of FTBs as who is going to have a 50% deposit. It wouldn't make house prices fall massively ( despite your hopes ) because people wouldn't be able to afford to sell their house at a huge loss, so you would just end up with even less housing available. 

Thanks. Would increasing LTV to say 150% increase house prices and allow FTBs to buy more easily?

mi-key

I actually think 100% mortgages aren't such a bad idea. However I have a feeling not many people will qualify for them, even if they have been paying more in rent. I can imagine the salary multiple they will give being pretty low compared to 90% mortgages, and the affordability checks being very strict.

It has always been a problem with the UK mortgages though that you can  have been paying £1200 a month in rent for 10 years, yet when you want to buy a house that will cost you £800 a month in mortgage payments, the lender tells you you can't afford it according to their computer.

mi-key

There's been a 25% increase in dwellings in last 30 years vs 21% increase in population.
https://www.gov.uk/government/statistical-data-sets/live-tables-on-dwelling-stock-including-vacants
https://www.worldometers.info/world-population/uk-population/

House prices are up 400% over that same period.

House price increases are due to more debt - nominal housing stock has increased and increased per capita.

"YOU can live with some happy people. Great. So long as you can live with it, forget all of the unhappy people? "

You cannot make everyone happy. Many cannot afford houses now and allowing them to borrow more simply compounds the issue for those that follow.

"It would cost more to build than it would to buy. "

Not sure of your logic here since there would be an initial reset in price across the industry and economy including input costs.

Put simply, people seem willing to take more and more financial risk, encouraged by govt policy to spur housing demand and the fallacy that higher house prices are good for the economy. That is not a sustainable path and will end in another economic collapse.

Sorry, but you don't seem to have a basic understanding of how supply and demand effects house prices ?

If tomorrow every house was suddenly 50% of what it was today, lots more people would be able to afford to buy. But because there is a shortage of housing, you would get lots of people chasing the same house, which would then end up driving the price of the house up because everyone would try and outbid each other as otherwise they couldnt buy anywhere.

Then because the last house sold for say 30% over the asking price, the next seller puts their house on for 80%, there aren't as many buyers, but because there is still more buyers than houses, the price of that one gets pushed up as well to 85%

In a very short period of time you would be back in exactly the same position before prices fell.

The only way this would change is if there were lots more houses for sale than buyers to buy them, then sellers would have to reduce the price to get a sale, but with less space for building, and an ever growing and aging population, that will never happen. 

lojo1000

mi-key said:

There's been a 25% increase in dwellings in last 30 years vs 21% increase in population.
https://www.gov.uk/government/statistical-data-sets/live-tables-on-dwelling-stock-including-vacants
https://www.worldometers.info/world-population/uk-population/

House prices are up 400% over that same period.

House price increases are due to more debt - nominal housing stock has increased and increased per capita.

"YOU can live with some happy people. Great. So long as you can live with it, forget all of the unhappy people? "

You cannot make everyone happy. Many cannot afford houses now and allowing them to borrow more simply compounds the issue for those that follow.

"It would cost more to build than it would to buy. "

Not sure of your logic here since there would be an initial reset in price across the industry and economy including input costs.

Put simply, people seem willing to take more and more financial risk, encouraged by govt policy to spur housing demand and the fallacy that higher house prices are good for the economy. That is not a sustainable path and will end in another economic collapse.

Sorry, but you don't seem to have a basic understanding of how supply and demand effects house prices ?

If tomorrow every house was suddenly 50% of what it was today, lots more people would be able to afford to buy. But because there is a shortage of housing, you would get lots of people chasing the same house, which would then end up driving the price of the house up because everyone would try and outbid each other as otherwise they couldnt buy anywhere.

Then because the last house sold for say 30% over the asking price, the next seller puts their house on for 80%, there aren't as many buyers, but because there is still more buyers than houses, the price of that one gets pushed up as well to 85%

In a very short period of time you would be back in exactly the same position before prices fell.

The only way this would change is if there were lots more houses for sale than buyers to buy them, then sellers would have to reduce the price to get a sale, but with less space for building, and an ever growing and aging population, that will never happen. 

If tomorrow every house was suddenly 50% of what it was today, lots more people would be able to afford to buy. 

True but not sure why you are saying this since I referred to restricting LTV to 50% not house prices at 50% of current values.

But because there is a shortage of housing, you would get lots of people chasing the same house, which would then end up driving the price of the house up because everyone would try and outbid each other as otherwise they couldnt buy anywhere.

Well no, I refer to my previous point of restricting LTV which would act to reduce demand for housing and hence have a downward impact on price.

Then because the last house sold for say 30% over the asking price, the next seller puts their house on for 80%, there aren't as many buyers, but because there is still more buyers than houses, the price of that one gets pushed up as well to 85%

I have some sympathy with your comment here. Buyers do seem to just assume that house prices should go up and are almost willing to buy at any price regardless of whether it is a sensible long term decision.

In a very short period of time you would be back in exactly the same position before prices fell.

Not sure how you reach this conclusion despite your excellent grasp of housing economics. Perhaps though you overlooked my comment on restricting LTV.

The only way this would change is if there were lots more houses for sale than buyers to buy them, then sellers would have to reduce the price to get a sale, but with less space for building, and an ever growing and aging population, that will never happen. 

I disagree here on the only way house prices will not keep going up.....restrict LTV and keep the BoE base interest rate at 4%. That would ensure house prices came were not bought on the expectation of rising prices.

You give people too much credit. Most people are dumb and just follow others. They don't want to miss out when all around them are seeing their investments increase in value. They will do anything to buy a house and start 'climbing the ladder'.

Answer me this. If the house 30 years ago is the same house as today, why is it worth 400% more to someone today? (dwellings +25% and population +21% over the same period).

mi-key

I disagree here on the only way house prices will not keep going up.....restrict LTV and keep the BoE base interest rate at 4%. That would ensure house prices came were not bought on the expectation of rising prices.

You give people too much credit. Most people are dumb and just follow others. They don't want to miss out when all around them are seeing their investments increase in value. They will do anything to buy a house and start 'climbing the ladder'.

Answer me this. If the house 30 years ago is the same house as today, why is it worth 400% more to someone today? (dwellings +25% and population +21% over the same period).

Because the prices of most things increase over time. As do peoples wages and buying position. Average wage 30 years ago was around 16,000, now it is 33,000 and the majority of houses are bought using two incomes rather than just one.

lojo1000

And why do wages go up.....?

born_again

lojo1000 said:

I don't think the government should allow anything over 50% debt/equity when buying a house.

Prices would fall to a new equilibrium and from there the financial risk would be lower on both the buyer and the lenders.

Interesting idea. A brave new world.

But look at the number of people that could never sell their house due to negative equity.

For any sort of equilibrium it would take decades, & a generation of people going broke.

Most likely lead to a total collapse of markets.