Bank plans to cap risky mortgages

[centurian]

It makes all the difference

Don't want to ruin my cred by agreeing with Atw, but he's right here. The housing bubble was precipitated by foreign money being shoveled into banks and building societies.

If banks could only lend out depositors money, they would have had less to lend out, so would have cherry picked the customers according to risk.

It was made worse by the perpensity of such investors to cut and run at the first sign of trouble. Northern Rock wasn't brought to it's knees by the queue of customers at branches, but their complete exclusion from the financial markets.

[shaunbhoy]

Still bitter about missing the property gravy train. Let it go man FFS!

[AtW]

Responsible for what? It makes little difference whether it is from savers or other sources, the bank is still lending borrowed money. That's how it works.

It makes all the difference - when money come from savers there is a limited supply of such money in locality where bank is, this acts as a limiter on local asset bubbles (unless a lot of foreigners move in to buy it for cash), however when bank can get money on money market from countries that print them like no tomorrow then it skews local market with run away prices and giving loans to people who should not have had them (not at those volumes for sure).

[HairyArsedBloke]

expect all the lefties to start whinging that it "discriminates against those that don't have money" etc.

Funny you should say that. Many analysts regard the Clinton Regime's changes to the Community Reinvestment Act that addresses such 'discrimination' as being the root cause of the sub prime crisis.

[d000hg]

There is a conflict of interests between the banks and the consumers here because it is in the banks' interest to give out larger and larger loans.

It's in their interest to make the most on interest from loans. Not quite the same... increasing loans to the point too many default introduces problems.

[Gonzo]

Where's the risk in offering 125% mortgages? House prices only ever go up don't they?

There is a conflict of interests between the banks and the consumers here because it is in the banks' interest to give out larger and larger loans.

I suppose it will be all right - so long as the banks' have to live with the consequences of their crazy lending and the government doesn't do anything stupid like bail them out.

Bugger.

[centurian]

I don't think 100% or 125% mortgages were legally banned, but that mortgage providers internally banned them because they were (and still are) too risky.

The danger is that as soon as there is some sort of recovery, some bright spark in a bank / building society will argue that there are big profits to be made from [placeholder for new fancy buzzword that is basically sub prime, yet bamboozles everyone into thinking it's risk free].

Personally I think there should be a minimum deposit of 10%. Of course, expect all the lefties to start whinging that it "discriminates against those that don't have money" etc.

[d000hg]

Which were banned a year or more ago, I thought? Or was that only a government suggestion that wasn't made a rule?

[Doggy Styles]

The problem lies with 100 per cent (and more) mortgages, allowing high lending to earnings ratios, and high risk lending.

In other words, the credit boom of the 2000s when banks were encouraged to throw money around like confetti.

[d000hg]

Didn't they already do this? It's very hard to get less than 10% mortgages following changes after Northern Rock.

As for houses being worth some multiple of salary, in poorer parts of the country you can get a 4-bed semi for £70-80k. The one I'm letting out is for sale if you'd like to invest
If people are rich enough to force the price of houses so high in nicer areas, isn't that just supply & demand?

[Doggy Styles]

"Until the early 1980s, banks were only allowed to lend money that had been deposited by savers, therefore mortgages were effectively rationed. However, these rules were scrapped by Margaret Thatcher’s administration, which allowed banks to raise money for lending from the money markets."

So, now we know who is responsible!

Responsible for what? It makes little difference whether it is from savers or other sources, the bank is still lending borrowed money. That's how it works.

Do you think they should have a big pile of their own money and only lend from that?

[AtW]

"Until the early 1980s, banks were only allowed to lend money that had been deposited by savers, therefore mortgages were effectively rationed. However, these rules were scrapped by Margaret Thatcher’s administration, which allowed banks to raise money for lending from the money markets."

So, now we know who is responsible!

[AtW]

Charlie Bean, the Bank’s Deputy Governor, said “direct constraints” may be needed to restrict access to credit, and that homebuyers could be forced to put down sizeable deposits before being granted a mortgage by their banks or building societies. This would mean that prospective buyers would have to put down between 10 per cent and

25 per cent of a property’s purchase price as a deposit before being able to obtain a loan.

It is the first time that a senior official has indicated that the Bank may intervene directly with new rules on so-called “loan to value ratios” to stop risky lending. In the years before the credit crunch, some borrowers were lent 125 per cent of their property’s value and became stuck in negative equity when prices crashed. The move would also mark the return of so-called “credit controls” — scrapped in the early 1980s — which made it difficult for many borrowers to get a mortgage.

More: Bank plans to cap risky mortgages - Telegraph

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About ****ing time - 3x average salary is about the fair value for a house - if you want more than you are a dirty spekulant and it's just a matter of time before you get introduced to Mr Wall