at last some positive news on housing 3x caps
- Thread starter mattheman
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Sounds good, atleast it will curb the amount those money grabbing greedy bankers will make.
House prices will fall and people will finally be able to buy a house that isn't a lifelong commitment. Hopefully forcing the prices down it may encourage lending sooner and so the economic wheel spins again
House prices will fall and people will finally be able to buy a house that isn't a lifelong commitment. Hopefully forcing the prices down it may encourage lending sooner and so the economic wheel spins again
Until you realise the competition this will bring to the market, the UK has a shortage of housing, if you drop the price it will mean lots of people suddenly want to jump on the merry go round, you'll land up with dozens of FTB's fighting over properties with BTL landlords in amongst them it will be cut throat and nasty. The houses maybe slightly more affordable but i doubt they will be any more attainable.
Where will all those BTL landlords get their cash from for 2nd, 3rd, 4th properties if they can only borrow up to 3 or 4 times their salary as well?
Admittedly at lower prices, some well off people may be able to buy a 2nd property with savings. But if implemented properly, a cap scheme would restrict that ability of BTLers just as much as anyone else, if not more so. But obviously it depends on how it is implemented.
By marrying someone with a similar salary..... which in part is where money has come from to fund the crisis......
Mugs, or people just trying to buy a house in an inflated market? If every house is 'expensive' how can you say 'No' when you need a house? You can't.
I was being sarcastic, hence the quotes around help. It was a ploy by the banks to get more money out of customers, i.e. lend more, get more interest.
The market isn't going to "bottom out" or if it does, it's going to take so long to get there it'll be too late to consider it.
In this situtation, simple market forces dictate the price will just go up.
We'll be left with first time buyers not being able to afford anything without huge deposits because they can't borrow any more than 3x their salary. It'll be the same as it is now, but with slightly lower nominal prices.
I would think if this goes ahead, we'll have a lot more people renting. On the plus side, house price inflation would primarily only increase in line with wage inflation.
Less likely in the short term, sure. But in the long term, they were probably thinking they'd do some kind of sale / equity release when a 5 bed house over 3 floors no longer seems like such a good idea.
Capping at 3 times salary seems ridiculous to me, to be honest. Even in the days of 12% interest rates, you could get 3.5 * salary if you wanted.
In general, people don't fail to pay the mortgage because they "took on too much", they fail to pay it because they've lost their job. In which case you are no better off with a 3 * salary mortgage than a 5 times.
Though I'd also be interested to see what the distribution of "mortgage-to-salary ratios" actually looks like. The people I know may be on the 'risk-averse' side of things, but I hardly know anyone with a ratio over 3.5.
I would agree to an extent but the ratios will change (especially for those renting / first time buyer). The monies involved in relation to the purchasers income will stay the same, however the price of houses will need to fall thus the ratio will become "better" for the purchaser.
Demand in the housing market has been allowed to run away due to massive multipliers - this would end under the new proposals. As a result the demand will drop as no one will be able to meet the needs.
Unless the construction industry as a whole has signed a suicide pact they will have to build new houses but expect far less profit for the near future. As a result you will end up with a new stock of housing coming on the market for a more normal price.
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Perhaps slightly off topic but one thing that gets me is that some people recently, especially first time buyers, seem to think they have a right to be able to buy a nice home in a good area without saving first. Hey you know what, I'd rather drive a Ferrari than my Golf but thats not the way it works. If you want to buy then you have to start at the bottom. If you want to buy in a nice area then you will have to either pay more or accept less.
If you dont have a large deposit or income then you might have to settle for a less affluent area. If you are buying on a single salary then you are not going to get, nor shuold you, the same level of lending that a joint application will unless you have a significantly above average wage.
we have quite a large mortgage but its under 3x our combined income as thats the maximum we were comfortable with. my OH is the bigger earner and should we have kids then our income would drop significantly. People have to think ahead as what you can afford today is not necessarily what you can afford in the future.
If you dont have a large deposit or income then you might have to settle for a less affluent area. If you are buying on a single salary then you are not going to get, nor shuold you, the same level of lending that a joint application will unless you have a significantly above average wage.
we have quite a large mortgage but its under 3x our combined income as thats the maximum we were comfortable with. my OH is the bigger earner and should we have kids then our income would drop significantly. People have to think ahead as what you can afford today is not necessarily what you can afford in the future.
Yeah, I think this may well be right.
Because if you look in terms of what you actually have to pay out per month, houses are actually pretty cheap right now. There are a lot of "non" first-time-buyers who have an excess of cash and/or disposable income. And given current interest rates, there's not much incentive in putting/leaving money in the bank.
I think the main thing stopping those people 'piling in' is that prices are still falling. Which is a catch 22, of course. But once we hit the bottom, I think there are more people ready and able to buy than some people realise. So those licking their lips at the thought of price falls may well find themselves beaten to the punch by people looking to BTL who have significant cash/income advantages.
This will crash the market and crash rental market. From personal perspective - I became home owner in 2003 thanks to 100% Northern Rock mortgage at 4.5 times my salary ratio. Even at that point, which you would now call subprime, the mortgage wasn't outside my affordability zone, and it was actually saving me money. 2 bedroom house in South East would cost me minimum £800-900 to rent, my first mortgage bill was £817 pounds. Two years later I switched mortgages, and thanks to increase in value I could take 95% LTV mortgage at 4 times my salary, at lower percentile saving me £100 monthly. At that point, with mortgage repayments at £711 a month I couldn't possibly rent similar or smaller semi detached property for that kind of money anywhere in 20 mile radius. Further two years later, I switched mortgages again, and thanks to increased value of property (already on it's way down) I took variable 90% LTV mortgage at 3.66 times my salary. The economy crashed, my working hours were reduced, thus my salary was cut, but because base rate fell through the floor I currently pay less than £450 pounds in replayments. Which helps enormously. A bench in park with umbrella over my head would cost me more. When my fixed term is over, if the base rate bounce back to what it was I am looking at anywhere between £1000 and £1100 a month. It's survivable, but obviously disadvantage in long term.
So essentially - having mortgage over 3 times my salary has never pushed me over affordability factor. It was never cheaper to rent. It was never a "bubble" to live in. I never skipped payment. I never felt it was difficult to reach ends meet. It's not impossible for me even right now to find another mortgage to continue reasonable repayments.
However, should new FSA regulations come into play and base rate recover, the inability to switch mortgages would push affordability over the edge. Because of economic hardship, my wages are smaller, my 3 times salary factor is smaller, the value of the house fell, and so new mortgage would be completely out of the question. So the regulations would currently put me in a position of either coming up with 20,000 pounds on the spot, or living in a house with end of fixed term repayments of my current mortgage being set much higher than rental prices in the area. At which point, you have to realise, because of new FSA regulation and that regulation alone, since in light of house market collapse home ownership wouldn't add any financial security or long term benefit to owning property - it would be better for me, financially, to default and let bank repossess than be home owner.
Not because I took 100% mortgage at 5 times my salary 6 years ago. Not because of credit crunch now. Not because of house market falling. But because reverse bubble created by new regulations. Multiply that by few million people with under 50k salaries in same position as me and you have biggest crisis in British history over night.
So essentially - having mortgage over 3 times my salary has never pushed me over affordability factor. It was never cheaper to rent. It was never a "bubble" to live in. I never skipped payment. I never felt it was difficult to reach ends meet. It's not impossible for me even right now to find another mortgage to continue reasonable repayments.
However, should new FSA regulations come into play and base rate recover, the inability to switch mortgages would push affordability over the edge. Because of economic hardship, my wages are smaller, my 3 times salary factor is smaller, the value of the house fell, and so new mortgage would be completely out of the question. So the regulations would currently put me in a position of either coming up with 20,000 pounds on the spot, or living in a house with end of fixed term repayments of my current mortgage being set much higher than rental prices in the area. At which point, you have to realise, because of new FSA regulation and that regulation alone, since in light of house market collapse home ownership wouldn't add any financial security or long term benefit to owning property - it would be better for me, financially, to default and let bank repossess than be home owner.
Not because I took 100% mortgage at 5 times my salary 6 years ago. Not because of credit crunch now. Not because of house market falling. But because reverse bubble created by new regulations. Multiply that by few million people with under 50k salaries in same position as me and you have biggest crisis in British history over night.
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Perfect. Perfect. Perfect.
Well done to the FSA.
We just need to get rid of Self-Cert mortgages, and make the maximum loan 75% LTV and the World will be a better place.
Well done to the FSA.
We just need to get rid of Self-Cert mortgages, and make the maximum loan 75% LTV and the World will be a better place.
Well, apart from the massive economic depression in the UK as a result.
Incidentally, do you still think the recession and house price drop is a good thing for the people of this country?
Not that I'm any expert, but isn't the fact that people were getting huge mortgages to buy places they couldn't really afford part of the reason that got us into this credit crisis? Surely we need to encourage less people to live in debt, therefore reducing the number of homeowners in this regard is a good thing.
It also means that we will not have so many homes being taken by individuals, meaning that there is a greater supply for couples or families who want to buy, and less need to build thousands of new homes.
Remember, it isn't an innate human right that you can leave school then buy your own flat/house. Before the days of easy credit, people (i.e. couples) had to save for years before affording one.
Any practice that reverses this stupid excess credit trend is a good thing as far as I'm concerned. Yes, I realise that there will be problems in the meantime (and as to the extent of those problems I am not really knowledgable enough to comment) but any short term pain surely is worth the long term stability.
It also means that we will not have so many homes being taken by individuals, meaning that there is a greater supply for couples or families who want to buy, and less need to build thousands of new homes.
Remember, it isn't an innate human right that you can leave school then buy your own flat/house. Before the days of easy credit, people (i.e. couples) had to save for years before affording one.
Any practice that reverses this stupid excess credit trend is a good thing as far as I'm concerned. Yes, I realise that there will be problems in the meantime (and as to the extent of those problems I am not really knowledgable enough to comment) but any short term pain surely is worth the long term stability.
Not really. The default rate on UK mortgages (even those classified as subprime) is still low. The problem has been a dramatic reduction in available credit due to problems stemming from the securities and derivatives market and incorrect risk rating on mortgage backed securities mainly from the US.
You can argue that our indebtedness as a nation has made us more vunerable to this external contraction (which it has), but the root cause of it has not been debt taken on by UK borrowers or companies.
The point is this measure isn't allowing the market to correct itself (the short term pain), it's an attempt to manipulate the market (destined to fail as history shows) that will result in excessive hardship for many. This is completely the wrong time to bring in such a regulation, because the actual correct multipler cannot be known until the market has corrected itself to a new balance. It might be that 3x is correct (although that's going to result in a serious loss of value to existing homes and probably put 2/3rds of mortgage holders in negative equity), but chances are it's not. Let the market settle, then work out a reasonable maximum LTV and average earnings multipler based on average earnings and prices at that point. That's what responsible regulators would do, but as we know, the FSA aren't responsible, they are government puppets and therefore will happily jump to labour's economic incompetance instead of protecting us from it.
Indeed, I can't believe the media have been so quiet about it. Not hit the prime time news at all (or anywhere).
Bizzare
You state having a mortgage over 3 times your salary has never pushed you over the affordability, yet here we're in a situation that as you agree, will push you over the edge. Is that not a slight contradiction?
If you have a reliance on either of the following:
- Low Interest Rates
- Introductory Mortgage Rates
- Re-mortgaging
- House Price increases
...then you could not afford your mortgage on the original terms, which is what you agreed to. Whilst those things have been apparent during the boom years, they were never guaranteed over the long term. Lower income multiples help soften the blow of the above disappearing.