Reply to: FSA to cap mortgage borrowing

[BrilloPad]

My sister-in-law (the one that got into BTL big time just as the bubble ended) has bought a new build house (at near the peak) which is due for completion in a few months.

I wonder if this law will affect her existing mortgage offer? I'm sure she's borrowed at least 10x her salary.

The government would NEVER do retrospective legislation would it?

[DimPrawn]

My sister-in-law (the one that got into BTL big time just as the bubble ended) has bought a new build house (at near the peak) which is due for completion in a few months.

I wonder if this law will affect her existing mortgage offer? I'm sure she's borrowed at least 10x her salary.

[GreenerGrass]

It will be interesting to see what happens.

Increasing the multiplier has enabled house price growth to outsrip earnings growth by such a large amount in recent years. By removing this stimulation the two will have to realign and that will be painful.

Either house prices will have to drop significantly (which they might), or incomes will have to rise significantly (which they will if you have a good burst of old-fashioned, seventies and eighties style inflation).

Either outcome will not be very pretty.

The trouble with relying on inflation to bail us all out is wage inflation has lagged real inflation for over a decade - why would it catch up in the future - especially in a recession/near depression when employers hold all the cards?

Look at permie job salaries in IT, or contract rates for that matter. They are not much higher now than they were in 1999/2000, and could easily head lower. In fact it's quite incredible when you realise how good we had it back then in relation to house prices, even as permies.

[BrilloPad]

Christ, It's just struck me.

This isn't about a sudden fit of prudence in not lending more than people can afford to repay. The Government must know damn well it will soon cause property prices to plummet, and their already dire ratings with it, and more and more people to go into negative equity.

No, it's rationing!

Obviously, one way or another, the banks and building societies just don't have enough net funds (taking into account their toxic assets still swilling around) to lend any more.

Or am I being silly, and queazing should take care of that?

Gosh : how did people ever last before the 1970s when you could only borrow 3 times?

Oh yeah : there was prudence and people saved up for stuff.

Though limiting people to 3*salary doesnt make much difference as far too many hauses are bought for cash. First time buyers still dont get a look in.

[bren586]

If you can only borrow 3 time income then the first time buyers will only be able to pay X.

This means the people who are moving up from their 2 bed street house will only have a modest (and currently a loss) gain in equity.

It is going to freeze the housing market.

On the plus side, chavs with no money or jobs will not be able to buy anything.

I can also confirm that if you wander in to any high street bank with 25 % deposit they are willing to lend you quite stupid sums of money.

Apparently I can borrow 450K with very few questions and a quite low interest rate.

[Gonzo]

On the one hand, a 3X multiplier would cap my borrowing at about £200k. On the other hand I wouldn't want a mortgage for over about 210k anyway... and I am quite happy to sit and wait for prices to plummet before buying.

It will be interesting to see what happens.

Increasing the multiplier has enabled house price growth to outsrip earnings growth by such a large amount in recent years. By removing this stimulation the two will have to realign and that will be painful.

Either house prices will have to drop significantly (which they might), or incomes will have to rise significantly (which they will if you have a good burst of old-fashioned, seventies and eighties style inflation).

Either outcome will not be very pretty.

[d000hg]

On the one hand, a 3X multiplier would cap my borrowing at about £200k. On the other hand I wouldn't want a mortgage for over about 210k anyway... and I am quite happy to sit and wait for prices to plummet before buying.

[TimberWolf]

Christ, It's just struck me.

This isn't about a sudden fit of prudence in not lending more than people can afford to repay. The Government must know damn well it will soon cause property prices to plummet, and their already dire ratings with it, and more and more people to go into negative equity.

No, it's rationing!

Obviously, one way or another, the banks and building societies just don't have enough net funds (taking into account their toxic assets still swilling around) to lend any more.

Or am I being silly, and queazing should take care of that?

Maybe letting good old hyperinflation rip, sorry unrestrained queazing*, is the best plan?

*We could do with a nice euphemism for printing money like there is no tomorrow. Do you think Labour have one already lined up?

[OwlHoot]

Christ, It's just struck me.

This isn't about a sudden fit of prudence in not lending more than people can afford to repay. The Government must know damn well it will soon cause property prices to plummet, and their already dire ratings with it, and more and more people to go into negative equity.

No, it's rationing!

Obviously, one way or another, the banks and building societies just don't have enough net funds (taking into account their toxic assets still swilling around) to lend any more.

Or am I being silly, and queazing should take care of that?

[BrilloPad]

I doubt it. Anybody got money in Irish Banks ? Get it out FAST !!!!

[OwlHoot]

http://www.telegraph.co.uk/finance/p...borrowing.html

"FSA to cap mortgages at max 3 times salary and min 5% deposit."

Is this not going to drive down the price of houses ?

average salary = 24,000 (Aug 2008)

Max mortgage for a single is now 72,000 + 3600 for the deposit.

I assume that they will allow some contribution from the partner but if it was as when I bought my first house then that was just X1

That would make it £96000 top whack for Mr and Mrs average.

I do not see this working for years - all that will happen is people will not be able to move.

Yup, they really are as mad as hatters (especially regarding the deposit).

[Cyberman]

Cretin.

By the time the further 50% drop in house prices takes place, you'll wish you had "risked" the banks.

I doubt it. Anybody got money in Irish Banks ? Get it out FAST !!!!

[milanbenes]

fair doos...

sas 1 cyberman 0


Milan.

[sasguru]

I did put my house on the market almost two years ago, but as soon as the banking crisis hit, I decided not to sell because it was obvious to me at that time that holding a property is far safer than risking cash in a multitude of banks where only up to 30K at the time was guaranteed. I would have needed ten bank accounts, so pretty wise methinks !!

Cretin.

By the time the further 50% drop in house prices takes place, you'll wish you had "risked" the banks.

[Mailman_1]

A 3X limit will surely have a massive impact. Banning 100% mortgages is pretty meaningless now but I was told only last week by my mortgage advisor that most banks still work at 4X.

Wonder if it will actually go through?

I was quoted around 6x by Abbey just last week. My current mortgage is with them and I rang to see how much i could borrow for a move up. They came up with over double the amount i needed with no requirement for accounts etc. My FA's advise that self cert and no accounts arent a problem either and are quoting the same rates as the mainstream banks for tracker and fixed price mortgages. A 25%+ deposit goes a long way at the moment.