at last some positive news on housing 3x caps

[scorza]

The point I was making above is that we do need to avoid this situation happening again in future, and once the market has settled to a more realistic level, then we should maybe look to learn from the mistakes that were made in the last 10-15 years. And imo, one of the biggest mistakes was to artificially inflate the price of houses, with the excessive availability of cheap credit.

I'm interested as to why you say that? I'm not aware of any specific problem in the UK housing market, indeed my home as an investment has performed better than my pension (only down 20% in 2008 as opposed to down 25% ).

As far as I'm aware the problem is mainly in the US sub-prime housing market, which banks were happy to bet the farm on due to the higher risk premium leading to higher bonuses, forgetting that in the USA, unlike here, it's possible to walk away from your mortgage leaving the bank to sort out the mess. This imo is the crux of the problem, and this is what regulation needs to sort out - not the UK housing market especially.

 

[sven256]

At early 2000s prices, we're looking at £100k average house prices, which is a fair way above the borrowing that will be available to all people (remember, the 3x multiplier will apply to everyone, not just first time buyers).

Again if you take into account deposits 100k sounds correct to me, or not far off the mark.

And 3.8 million home owners which "could" be in negative equity, is about 13% of total home owners. Admittedly quite a high number, but if they are planning to stay put for a while there is no problem in this.

I think the main thing is there is going to be further drops if you like it of not, its the way the economy works always has and always will.

And as for the economy, lets just hope this may break a lot of the ties the housing market has with the economy. And things work out better in the long run.

 

[div0]

I'm interested as to why you say that? I'm not aware of any specific problem in the UK housing market, indeed my home as an investment has performed better than my pension (only down 20% in 2008 as opposed to down 25% ).

Because your 'investment' has only seen such a good 'return' due to a market that was artificially inflated by the availability of cheap credit.

Once there is any reduction in the availability of cheap credit - be it reduced lending, or higher interest rates, then the price of your 'investment' will fall. There is no other way about it.

Now you can argue that there is nothing wrong with supplying cheap credit - but as we have seen with the current situation, it leaves the government with very few options on how to turn things around, if and when other global factors affect borrowing. Interest rates have been forced to an all time low, as the only way to try and encourage spending. The levels of borrowing/personal debt that we have seen in recent years are not a good thing imo, as the only way to sustain any growth, is to constantly promote further borrowing.

 

[Gilo]

This is such a stupid idea I'm virtually speechless. Does this not add to the 'toxic debts' that are allready @ a high point?

 

[oweneades]

3x Salary cap? What a stupid idea.

What can't banks / FSA use some common sense and look at it from the point of view of what people can actually afford (ie by doing a monthly budget breakdown - like my wife and I did with our mortage advisor) rather than just using an absolute number.

 

[Gilo]

I don't like giving financial advise to anyone, but this regulation hasn't come into effect yet. If you move quickly you might be able to avoid getting caught up in this, if that's what you want...

Is this what they want to increase the figures for a few months?

 

[Bald-Eagle22]

More importantly what will it do for the rental market .

 

[rs125]

I don't like giving financial advise to anyone, but this regulation hasn't come into effect yet. If you move quickly you might be able to avoid getting caught up in this, if that's what you want...

That's the thing I don't now know if we should go ahead or not as when this comes in the house may drop another £20,000..

Are you planning on buying somewhere you can stay in for a reasonable amount of time? Now is certainly not the time to buy somewhere that you'll quickly grow out of or anything like that.

Yeah were going for a 3 bed in a nice area so we dont have to move again for the foreseeable future

The house were hoping to get is on the market for £185,000...We have saved hard and managed to save £30,000....I just don't want all our hard work saving for a deposit to be for nothing if the house suddenly losses thousands in value due to this new rule..

 

[mattheman]

This is the best idea for everyone, the amount of money taken out of circulation from the economy would reduce, meaning more spending, more people in employment reducing taxes. Sales volumes would rise helping the construction industry etc...
Rents would be lower helping the 20s somethings, more people with more money in their pockets, it will stop speculation of the housing market, and the best of all increase competitiveness in the economy, everyone wins, and only a few lose. Theres a huge list of positives in this, infact council taxes could be reduced. It will motivate people to seek employment knowing they have a chance to own their own home,this will increase productivity.

 

[Bar]

We are in the mess that we are for a number of reasons, the disconnect between house prices and average salaries is just one of them.

However in 2001 I bought a house, joint mortgage at 2.5 multiplier, and was very comfortable (3 bed semi).

In 2006 I bought a house, single mortgage at 5x multiplier, and was very lucky to get it sold before things took a nose dive (2 bed semi)

Dolph - you mention that this will benefit only first time buyers who I would agree are in a vast minority, however, that pool is growing bigger every day.

You will also have people like myself that got rid of their low equity properties and started renting to ride out the house price decline.

For the above two groups a 3x cap is ideal, yes it will cause a vast amount of pain in the short term. But as people have said about first time buyers just having to struggle and only buy when they can afford to, people will just have to pay their mortgages until they can afford to move.

A 3x cap will also have the following advantages, firstly it will give people a lot more disposable income, which should lead to both increased savings and increased spending in the economy. This increased spending will benefit all sectors.

Its the medium term pain for long term gain that we will have to suffer for a previous period of medium term gain and long term pain.

 

[a1ex2001]

This seems very strange to me as it's not like the UK has a massive amount of bad mortgage debt, repossesions while increasing are still pretty low and trying to further limit an already stagnated market hardly seems like recession beating policy to me.

It's also a strange one for the buy to let market where the mortgage criteria isn't based on what you earn but what level of rent you can achieve so will this leave us in a position where it is possible for buy to let investors to get much larger mortages than the average buyer? People say this will help the first time buyer but I can see the competition with buy to let investors being pretty intense, buy to let investors love cheap property you only have to look at the way they've bought up vast areas in poor areas like the Welsh Valleys to see this and there are plenty of people like myself with cash in the bank just awaiting the right moment.

Personally I'd welcome the massive fall in house prices this ludicrous policy would bring, I'm already considering investing in the buy to let student market and if they drive prices down even further then I maybe able to get two properties instead of one and double my income.

Surely the only sensible way to place a restriction is to do it based on % income being used to cover the repayments as otherwise you are not taking into consideration the changes in interest rates?

 

[Durzel]

It's tough to get involved in discussions like this because this sort of action just polarises opinion completely.

Either you already own a property (or several) and hate the news because it means having to face the realisation that property valuations are still ridiculously out of whack as compared to average earnings, etc.

Or you're a first time buyer or otherwise in the market to buy and it's good news because it means potentially houses that are overpriced might end up coming down in price.

I'm in the latter camp so I'll admit it's tough to be sympathetic with people - especially those with multiple properties who have historically capitalised on events to line their own pockets to the detriment of the economy as a whole.

 

[Dolph]

Or you're a first time buyer or otherwise in the market to buy and it's good news because it means potentially houses that are overpriced might end up coming down in price.

I'm in the latter camp so I'll admit it's tough to be sympathetic with people - especially those with multiple properties who have historically capitalised on events to line their own pockets to the detriment of the economy as a whole.

The thing is, I'm entirely unconvinced this will actually help first time buyers. Most first time buyers aren't high income, and the forced removal of ideas like 100% mortgages will do nothing to help the first time buyer at all.

The market will still balance out at the point where supply and demand are equalised, first time buyers will not find it any easier than it has been, because the market can't supply higher demand caused by lower prices, so it will stabilise at the equilbrium point.

 

[Dolph]

Again if you take into account deposits 100k sounds correct to me, or not far off the mark.

And 3.8 million home owners which "could" be in negative equity, is about 13% of total home owners. Admittedly quite a high number, but if they are planning to stay put for a while there is no problem in this.

It's better to look at the proportion of mortgage holders, rather than home owners. There the 3.8m looks much more significant (11.7m mortgage holders). Home owners with no mortgage aren't at risk of negative equity no matter what happens, so it doesn't make sense to include them. They are also far less likely to sell their house.

 

[starfighter]

I feel for people with expensive property that might end up in negative equity but we have seen what lending silly amounts does in the end.

My parents bought a nice house for 100k 15 years ago, it is obviously worth much more than that now.

But they still paid 100k, add on inflation and I don't think they will lose that much. The people that will be annoyed are those who play the housing game and were planning on making lots of money.

House prices will fall if there is no one to buy them. Over the long term it is good. Everyone in the UK will pay less intrest to the banks as we are only borrowing half as much.

The market was based on how much people could borrow /lend rather than what we could afford. I don't think we should aim to mortgage ourselves upto the eyeballs until we retire but because of the lore of a nice house everyne does until we get 7x mortgages and an economic crisis.

It just means more/less money to the banks.not much else and seeing as peoples mortgages are 50% of their wage I am supprised so many people disagree with me.

The people can't manage themselves unless you want to live in 1 bed flat in a bad area and neither can the banks.

Good idea but no doubt will annoy some.


There is a myth that Einstein said compund intrest is the greatest force on earth.

 

[div0]

The thing is, I'm entirely unconvinced this will actually help first time buyers. Most first time buyers aren't high income, and the forced removal of ideas like 100% mortgages will do nothing to help the first time buyer at all.

The market will still balance out at the point where supply and demand are equalised, first time buyers will not find it any easier than it has been, because the market can't supply higher demand caused by lower prices, so it will stabilise at the equilbrium point.

Surely this idea isn't about making housing more 'affordable' - but about giving a more stable economy, that is less reliant on the continued availability of cheap credit? Obviously if the system were to be implemented now, it would be a disaster - but as a concept, I see it as a better idea than the approach we've had for the last 10-15years, which was to keep borrowing more and more, and hope that credit stays widely available and relatively cheap.

 

[Dolph]

Surely this idea isn't about making housing more 'affordable' - but about giving a more stable economy, that is less reliant on the continued availability of cheap credit? Obviously if the system were to be implemented now, it would be a disaster - but as a concept, I see it as a better idea than the approach we've had for the last 10-15years, which was to keep borrowing more and more, and hope that credit stays widely available and relatively cheap.

Indeed, which is why those saying it's a good idea because it'll increase affordability haven't thought the thing through.

 

[krooton]

For once, I am glad to be renting, lol

 

[Bar]

Indeed, which is why those saying it's a good idea because it'll increase affordability haven't thought the thing through.

Over a period of time it would increase affordability.

There would however be a very painful correction much worse than the current correction.

In time affordability would increase as a cap on lending will ultimately place a cap on the majority of house prices. There will not be that many people who are willing to place substantial deposits (>£40k) in the new environment.

It will help first time borrowers and those who purchased their house prior to 1999. As long as they have not drawn down significantly on any equity generated by the boom in house prices.

The ones who would suffer most would be those who either took on a mortgage or significantly increased their mortgage over the last 5 years.

House price inflation has only been sustainable through a massive increase in debt - this is unsustainable as is the current average house price. You have a pool of first time buyers / renters that is growing daily who are unwilling or unable to purchase a house. Ultimately the housing market will grind to a halt unless house prices fall substantially OR cheap, vast credit becomes readily available again.

I doubt the latter will return any time soon.

 

[Dolph]

Over a period of time it would increase affordability.

There would however be a very painful correction much worse than the current correction.

In time affordability would increase as a cap on lending will ultimately place a cap on the majority of house prices. There will not be that many people who are willing to place substantial deposits (>£40k) in the new environment.

It will help first time borrowers and those who purchased their house prior to 1999. As long as they have not drawn down significantly on any equity generated by the boom in house prices.

The ones who would suffer most would be those who either took on a mortgage or significantly increased their mortgage over the last 5 years.

House price inflation has only been sustainable through a massive increase in debt - this is unsustainable as is the current average house price. You have a pool of first time buyers / renters that is growing daily who are unwilling or unable to purchase a house. Ultimately the housing market will grind to a halt unless house prices fall substantially OR cheap, vast credit becomes readily available again.

I doubt the latter will return any time soon.

Affordability isn't necessarily measured in finite quantities of money, houses will not be any more affordable or attainable after this action than they were before. The amounts of money involved might change, but the overall equation will not, because it's governed by supply and demand. There are only a finite number of homes available in each price band, they will remain in the same groupings, even if the value of those bands change.