Reply to: Exposed: the confidence trick that supports banks

[tim123]

It makes no economic sense to use gross salary multiplier because actual disposable income will be different for different people who may have same salary and live in the same place, do you agree with this?

It's an easy to calculate number which provide you don't go too high, has been show to work.

Yes, some people get penalised by the system, but IMHO this is better than everyone having to pay to bail out the banks

tim

[BrilloPad]

You'll have to forgive atW. He's never been in the top tax bracket and never had a mortgage so he doesn't know how it works.
To compensate though he did once do a simple Economics course at the Polytechnic of Ulan Bator.

Yes - but he did not fail! He got a third.

Shame to had to sleep with his tutor to get it!

[sasguru]

More to the point, someone on a higher income has much more discretion in allocating net income to mortgage payments if he chooses.
If you compare say someone on 80k gross to someone on 40k gross: the former would normally have less than 2x the net income of the latter; but he would be able to spend much more than 2x the amount on the mortgage, if he wanted to.

You'll have to forgive atW. He's never been in the top tax bracket and never had a mortgage so he doesn't know how it works.
To compensate though he did once do a simple Economics course at the Polytechnic of Ulan Bator.

[expat]

This is true. But then less NI at that point. Its small beer relative to my other points.

More to the point, someone on a higher income has much more discretion in allocating net income to mortgage payments if he chooses.
If you compare say someone on 80k gross to someone on 40k gross: the former would normally have less than 2x the net income of the latter; but he would be able to spend much more than 2x the amount on the mortgage, if he wanted to.

[BrilloPad]

Including income tax? 40% bracket reduces take home pretty considerably (ratio wise).

This is true. But then less NI at that point. Its small beer relative to my other points.

[AtW]

I think people will do ANYTHING to keep their house so will cut back on other things.

Including income tax? 40% bracket reduces take home pretty considerably (ratio wise).

[BrilloPad]

It makes no economic sense to use gross salary multiplier because actual disposable income will be different for different people who may have same salary and live in the same place, do you agree with this?

This is especially the case due to higher taxation which I think banks were not factoring in - in fact I don't think they gave a tulip because house pricing were growing so even if the person could not repay debt the bank would make get money back by selling house. A winning strategy no doubt.

No I dont - as I think people will do ANYTHING to keep their house so will cut back on other things. Also you will just encourage lieing on outgoings - gross salary is far more easily checkable.

[AtW]

Banks do ask about outgoings - leccy, gas, phone.

It makes no economic sense to use gross salary multiplier because actual disposable income will be different for different people who may have same salary and live in the same place, do you agree with this?

This is especially the case due to higher taxation which I think banks were not factoring in - in fact I don't think they gave a tulip because house pricing were growing so even if the person could not repay debt the bank would make get money back by selling house. A winning strategy no doubt.

[BrilloPad]

I'd make a good chancellor. Whoever made IR35 will be sacked among the first

Yes net salary is important. It always amused me during morgage boom time that banks used gross salary in full knowledge that 40% tax bracket would leave a lot less disposable income, this is especially true for place like London where salaries were higher and so were house prices but in terms of net salary the difference was even higher. If morgage payments were tax deductible (which they used to be I believe) then it would have made sense, but it was not making sense for the past 10 years. This just shows how irresponsible banks were - if I was running bank and had to decide whether to give morgage to someone then I'd obviously want to see if they get enough disposable income to pay the morgage! Gross salary is totally irrelevant - for all you know that person might have drug addiction that won't leave any money left for morgage payments.

Banks do ask about outgoings - leccy, gas, phone.

When they asked how much I spend on my drug habit I lied! I suppose they could ask my dealer......

[BrilloPad]

Yup, that's the idea. Constrict the money supply and keep inflation down.

Of course the problem with any inflation target is that it starts to misbehave when targeted - rather like Shrodinger's cat! Which is why I am in favour of targeting a range of figures.....

[AtW]

Yup, that's the idea. Constrict the money supply and keep inflation down.

Ironically it was USA that broke the standard despite having plenty of gold. The temptation to print money was irresistible.

[HairyArsedBloke]

I don't support gold standard. The only useful role it had though was putting kind of natural limit on money printing which disappears as soon as it was abolished.

Yup, that's the idea. Constrict the money supply and keep inflation down.

[AtW]

I think you forgot to mention the gold standard!

I don't support gold standard. The only useful role it had though was putting kind of natural limit on money printing which disappears as soon as it was abolished.

[AtW]

atw for chancellor? maybe as religious affairs minister too?

I'd make a good chancellor. Whoever made IR35 will be sacked among the first

Yes net salary is important. It always amused me during morgage boom time that banks used gross salary in full knowledge that 40% tax bracket would leave a lot less disposable income, this is especially true for place like London where salaries were higher and so were house prices but in terms of net salary the difference was even higher. If morgage payments were tax deductible (which they used to be I believe) then it would have made sense, but it was not making sense for the past 10 years. This just shows how irresponsible banks were - if I was running bank and had to decide whether to give morgage to someone then I'd obviously want to see if they get enough disposable income to pay the morgage! Gross salary is totally irrelevant - for all you know that person might have drug addiction that won't leave any money left for morgage payments.

[HairyArsedBloke]

I think you forgot to mention the gold standard!

OH YES! Thanks.

Yeah, bring that back too.



I find myself begining to like this idea.