Mortgage 100% LTV question

[flibbage0]

So I see that Lloyds Bank and Barclays have 100% LTV mortgages https://www.theguardian.com/money/2019/jan/28/lloyds-unveils-100-mortgage-for-first-time-buyers

So how does it work, parents put in 10% of the property value into a savings account and that's it?

Does the 4.5x annual salary not apply to how much of a mortgage you can get?

 

[Thecaferacer]

Yeah they deposit £10k that can only be drawn out once your LTV has matched it and you change deal. Obviously if you default then they take that money to offset against their loss.

Your earnings multiplier will always apply, so you won't be able to borrow in excess of 4.5x if that's what it's set at.

 

[h4rm0ny]

Well, I can see the...

Under the new Lloyds Bank “Lend A Hand” deal, a first-time buyer will be able to borrow up to £500,000 for a new home, without putting down a penny of deposit.

£500,000?!

 

[FoxEye]

This is sick.

Rather than looking at the ridiculous cost of home ownership, instead we're making it easier to get into gross levels of debt that people will never, ever pay off.

 

[flibbage0]

Well, I can see the...

£500,000?!

This is what I don't understand, I've discussed this with quite a few people in their 20's like myself and we've all said that we can save the 10% deposit after a while, just requires a bit of discipline and sacrifice, but it's the amount we can borrow which is the sticking point

 

[Goksly]

This is sick.

Rather than looking at the ridiculous cost of home ownership, instead we're making it easier to get into gross levels of debt that people will never, ever pay off.

Well that's not strictly true as you're still limited to a given multiplier. It's just the deposit is ultimately being loaned by a guarantor.
They're doing all they can to try and keep the current market value as high as possible. Will take a drop in demand to make it fail though!

 

[Boycey0211]

This is sick.

Rather than looking at the ridiculous cost of home ownership, instead we're making it easier to get into gross levels of debt that people will never, ever pay off.

Genuine question, not trolling.

How do you suggest addressing the cost of home ownership? People that this is aimed at will be able to pay it off, just not necessarily save the required amount for a deposit which i understand.

If we cut the cost of houses in half enabling more people to buy, people still end up in debt but now people like me just end up with massive negative equity.

I don't think theres any easy answers here

 

[FoxEye]

Genuine question, not trolling.

How do you suggest addressing the cost of home ownership? People that this is aimed at will be able to pay it off, just not necessarily save the required amount for a deposit which i understand.

If we cut the cost of houses in half enabling more people to buy, people still end up in debt but now people like me just end up with massive negative equity.

I don't think theres any easy answers here

Don't take this the wrong way, I'm not having a go at you, but..

Frankly, we got into this mess by thinking exclusively about people like you (home owners); the dominant thinking being "I want my asset to appreciate in value." And boy has your asset appreciated over the last couple decades

We've exclusively pandered to existing home owners and literally sacrificed the future in doing so.

To re-balance I'm afraid existing home owners are going to have to take some (long overdue) pain. There's just no doubting that many home owners have had it their own way for far too long. Maybe we can say that's more true of the so-called "baby boomer" generation than those who only recently entered the housing market. But of that latter group, many have "baby boomer" parents sitting on fortunes in property who could help them out.

Re-balancing will mean pain for you and your parents. But it's the fairest long-term outcome.

Also councils need to be allowed to start building new council housing again (which the Tory govt don't like ideologically).

 

[BongoHunter]

This is sick.

Rather than looking at the ridiculous cost of home ownership, instead we're making it easier to get into gross levels of debt that people will never, ever pay off.

I'm not sure this is all correct - houses are expensive but youve got to live somewhere.

Have just moved from rented myself - the mortgage is 300 less per month than the rent on my old place + I'm no longer putting away as much money as poss every month to build a deposit, so I've got at least £700 extra per month to play with now, and I'm living in a bigger place in the same area as before.

This kind of deal makes it easier for people to escape the rent trap - this must be seen as a positive IMO

 

[h4rm0ny]

Genuine question, not trolling.

How do you suggest addressing the cost of home ownership? People that this is aimed at will be able to pay it off, just not necessarily save the required amount for a deposit which i understand.

If we cut the cost of houses in half enabling more people to buy, people still end up in debt but now people like me just end up with massive negative equity.

I don't think theres any easy answers here

There aren't any easy answers. It's like the old joke: "You can't get there from here". Many of us have bought into the property market because we don't feel there's any other choice - are you going to spend your entire life renting? (Though that's the model in some countries). But having bought in we're in almost as much of a trap as the people who are stuck renting and can't get on the ladder. It's a nicer trap usually, but a trap it remains where any major readjustment in house prices could put us into negative equity, could make paying off harder (as our LTV soars), and so on.

My comment above isn't actually a criticism of this scheme in concept. It's reservation that it goes up to such high amounts because I feel if a first-time buyer cannot afford the deposit on a £500,000 property they should be looking at a cheaper property, not looking to parents to pay it for them.

I think the pound will fall in the not so distant future. Brexit may be the trigger for that, but I think the avalanche has been building for a long time before that. We don't do that much as a country anymore, outside of finance and education. The pound is, imo, significantly over-valued. Sooner or later there will be a readjustment. That wont be a good thing for home owners. Firstly house prices will fall. But the Bank of England will keep the rates low as they can to offset that. But whilst you imagine that would be a good thing for first time buyers, we'll likely see even more property bought up by foreign investment as a result. That's going to be harmful.

Short of Britain becoming an industrial power-house again and net exporter, there are no ways out of this that don't hurt a significant number of people.

 

[FoxEye]

This kind of deal makes it easier for people to escape the rent trap - this must be seen as a positive IMO

So if house prices go up... then increasing the earnings multiplier to allow a greater loan amount would be a good thing, right?

But what if that is helping to keep house prices increasing (hint: it probably is).

These measures aren't designed to help you. They're designed to keep the market inflating and inflating, ad infinitum. Because that keeps home owners voting Tory, and that is literally all they care about.

 

[BongoHunter]

So if house prices go up... then increasing the earnings multiplier to allow a greater loan amount would be a good thing, right?

I don't think that's a good idea or likely in the near term - the current affordability rules were put in place for a reason, they are not going away soon.

There is a small amount of flexibility in the current rules though I believe whereby banks can lend more than 4.5x income, but it's only for something like 15% of their total mortgage book value iirc.

 

[FoxEye]

I don't think that's a good idea or likely in the near term - the current affordability rules were put in place for a reason, they are not going away soon.

There is a small amount of flexibility in the current rules though I believe whereby banks can lend more than 4.5x income, but it's only for something like 15% of their total mortgage book value iirc.

The point was that there's two ways of looking at this "help". Either as "help" for first time buyers to get on the market, or as "help" for home owners to keep prices inflating.

Call me a cynic, but I believe the current government is much more interested in ensuring the latter.

It does look like the rate of inflation is on a downward trend at the moment tho, nationally.

And as others have said, Brexit (etc) could make this interesting.

Also foreign ownership is going up and up and up, which can hardly be a good thing. The last thing the market needs is Chinese landlords using the UK property market as an investment vehicle.

What we really, really, really need is rent caps and other pro-renter legislation.

Make it so that cowboy landlords can't snap up property and set rents stupidly high, whilst refusing to carry out essential maintenance and threatening their tenants with eviction if they report them to the authorities. Which, you might not be surprised to find out, is common amongst foreign landlords looking to make a buck. Esp Chinese ones, who have very different ideas/principles of what constitutes "fair" treatment.

 

[BongoHunter]

@FoxEye houses are worth what people are willing to pay for them, this is true of all things in our society, the only way to reduce price is to increase supply, there's simply no other way unless demand drops.

I don't see the government being up for stopping foreign investors purchasing property as it's a net gain to the UK balance sheet - I agree its increasing or sustaining the current prices in some places, but at a time when the government is trying to encourage house builders to build stuff - that would deny the very same the opportunity to maximise their profits and sales.

Better tennant rights should totally be on the cards though - there are a lot of cowboy/girl landlords around, I've had a few myself and they're a bloody nightmare.

 

[Jokester]

Banks seem quite blase about lending 90-100% at the moment, given the predications of a 30% drop in house prices they are making once brexit kicks in.

 

[FoxEye]

@FoxEye houses are worth what people are willing to pay for them, this is true of all things in our society, the only way to reduce price is to increase supply, there's simply no other way unless demand drops.

I don't see the government being up for stopping foreign investors purchasing property as it's a net gain to the UK balance sheet - I agree its increasing or sustaining the current prices in some places, but at a time when the government is trying to encourage house builders to build stuff - that would deny the very same the opportunity to maximise their profits and sales.

Better tennant rights should totally be on the cards though - there are a lot of cowboy/girl landlords around, I've had a few myself and they're a bloody nightmare.

Housing is quite unique in that land is finite tho.

That, and an ever-increasing population (immigration outpaces the rate of house building quite considerably) means that the housing market is different from other kinds of market.

Another fundamental difference is that you can't choose not to have a house. Or to not have a house whilst you save for one.

Given that housing should be a human right, it does need extra government intervention than other markets.

What I don't get is the number of people saying government intervention is always bad - completely ignoring places like Germany where there are lots of extra controls and it all seems to work well.

I fail to see why the UK can't emulate places like Germany - but landlords and mortgage lenders (associations thereof) tell us it can't be done.

 

[Haggisman]

To re-balance I'm afraid existing home owners are going to have to take some (long overdue) pain. There's just no doubting that many home owners have had it their own way for far too long.

A great idea in principal. Until you remember the fact that it's going to be people from your generation, who have had to go through the same struggles as you to only recently get on the ladder who are going to be hit the hardest. The ones whose homes haven't appreciated significantly in the last 1-5 years they've bought and and who would end up with a mortgage double what their house ends up being worth. The people you're bitter about who bought their house 20-30 years ago for a fraction of what it's worth, and who are a couple of years away from paying it off are going to be hit, sure, but nowhere near as badly.

 

[FoxEye]

A great idea in principal. Until you remember the fact that it's going to be people from your generation, who have had to go through the same struggles as you to only recently get on the ladder who are going to be hit the hardest. The ones whose homes haven't appreciated significantly in the last 1-5 years they've bought and and who would end up with a mortgage double what their house ends up being worth. The people you're bitter about who bought their house 20-30 years ago for a fraction of what it's worth, and who are a couple of years away from paying it off are going to be hit, sure, but nowhere near as badly.

Yes, but the people most hurt will be going back to their parents (least hurt), who far more often than not will help them out.

So in that way the pain will be shared more equally. Very few parents would let their kids lose their house when they have so much money in their own property.

As I said tho, we're going to have to experience this pain, because the alternative is that we keep advantaging the home owners and increasingly forcing non home owners into wage slavery.

The % of people paying >1/2 their income on rent is growing. And growing. Countless commentators (eg "economists") have called said the current trajectory is unsustainable.

Knowing this, we can't bury our heads in the sand and hope it just works out in the end.

 

[BongoHunter]

Housing is quite unique in that land is finite tho.

That, and an ever-increasing population (immigration outpaces the rate of house building quite considerably) means that the housing market is different from other kinds of market.

Another fundamental difference is that you can't choose not to have a house. Or to not have a house whilst you save for one.

Given that housing should be a human right, it does need extra government intervention than other markets.

What I don't get is the number of people saying government intervention is always bad - completely ignoring places like Germany where there are lots of extra controls and it all seems to work well.

I fail to see why the UK can't emulate places like Germany - but landlords and mortgage lenders (associations thereof) tell us it can't be done.

You're not wrong, but there are a few points to consider. Other than say digital goods - pretty much everything comes from physical finite resoures, it's true - more land is not being made other than maybe in the south china sea! But did you know that less than 3% of the UK is actually built on? That would suggest that land should carry less weight than you suggest - better transport links to and from areas with high employment may be a better tactic for the government to adopt than direct interference in the property market.

Some aspects of the German system could possibly be adopted in the UK - such as rent control (maybe) in certain areas - but the reason we won't see wide scale adoption of these systems in place is that it's simply to late - billions of £'s worth of UK lending is tied up in buy to let portforlios, though not everyone may agree with how BTL owners sometimes operate - this just can't be undone with the stroke of a pen, there's a need for rented property - it has to be fulfilled, it won't be fulfilled without private investors unless huge changes come about - the government doesn't have the money for it.

 

[FoxEye]

https://www.theguardian.com/commentisfree/2018/jan/27/building-homes-britain-housing-crisis

It is horribly complex. Pension funds tied up with the whole housing market. Foreign speculation with billions invested.

It just seems that, unlike Germany, we've allowed the situation to become such a mess the only way out is a going to be a painful shock to the system.

And no politician has the stomach for it.

So continuing on the current trajectory due to insufficient will to fix it means... well, we and those coming after us are largely boned (except where you were born to middle-class or better parents).