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HOLA441

UK taxpayers shoulder 'subsidised stagnation' in housing sector

Britain's housebuilders are set for “subsidised stagnation” as the Government has failed to secure necessary action in exchange for supporting the sector, a think tank warned.

http://www.telegraph.co.uk/finance/newsbysector/constructionandproperty/8975395/UK-taxpayers-shoulder-subsidised-stagnation-in-housing-sector.html

As with the banks, the state has backed developers without getting enough in return for its help, the Institute for Public Policy Research (IPPR) argued in a new report.

“The Government’s new Housing Strategy does not make sufficient demands of the housebuilders,” said Nick Pearce, its director. “Instead, it offers them public land, money and guarantees without a serious quid pro quo.”

Companies have been able to prioritise trading land over building homes and, without change, housebuilding risks another “lost decade”, even as the UK faces a housing crisis, the think tank claimed.

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HOLA442
  • 4 weeks later...
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HOLA443

UK - seems to start 10 Mar

Question - who sets the properties value, and is it realistic if it requires govt subsidy/intervention?

Our own First Buy had zero interest - this scheme is not of specific NI interest but comments on new build are

http://www.independent.co.uk/money/mortgages/high-hopes-that-newbuy-will-fuel-market-recovery-7503108.html

Many in the property industry will be shouting "good news all around" when the Government unveils its NewBuy Guarantee scheme later this month. But should aspiring homeowners really be welcoming this latest scheme with open arms?

Housing minister Grant Shapps has said that NewBuy will offer 100,000 homebuyers the chance to buy a new-build property with only a 5 per cent deposit. The typical deposit needed to buy a home is 20 per cent; so for a home worth £200,000 buyers under this scheme need a deposit of £10,000 rather than £40,000.

"All the major lenders have signed up," says Steve Turner from the Home Builders Federation, which together with the Council of Mortgage Lenders (CML) has been developing the scheme. "The biggest constraint on sales and construction is the fact that people can't get mortgages. Very few people can afford a 20 or 25 per cent deposit but this will reduce deposits to a realistic, achievable level."

NewBuy is due to be launched later this month but the Government, lenders and housebuilders are still working behind the scenes to iron out the finer details. There are some positive signs, not least of which is that unlike other initiatives that have been rolled out in the past, this is open to existing homeowners as well as first-time buyers (FTBs) on properties worth up to £500,000.

The housebuilders are behind this and I anticpate to see Nationwide, Lloyds and Santander move in from the likely start date of 12 March," says Nigel Stockton, a financial services director at Countrywide.

Lenders are being offered the security of protection against losses caused by further dips in the housing market. Developers will do their bit by putting up 3.5 per cent of a property's value as deposit with the lenders, and the Government will top up the guarantee with another 5.5 per cent.

"Lenders can lend with more comfort and without incurring risk and capital issues. Lenders typically have lower loan to values (LTVs) on new-builds than existing buildings so what this does is level the playing field a bit," says Sue Anderson from the CML.

If you're not looking to buy a second-hand property, lenders are always going to be more cautious. New-builds make lenders nervous because they are more vulnerable to house price fluctuations and the build quality can vary widely.

"A new-build is harder to value than an existing property and it has a premium attracted to it which doesn't necessarily extend when you resell – it's a bit like driving a car off the forecourt – which tends to mean that even in a buoyant market, lenders are more careful," says Ms Anderson.

In fact, according to Mr Stockton, some lenders won't give mortgages on new build homes: "Apartments are particularly problematic. Nationwide, for instance, used to value new-build the same as second-hand property – normally lower value – therefore below the asking price. However, things are improving and this should continue as NewBuy rolls out."

Edited by Shotoflight
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HOLA444

Uk

Letters: Crazy idea to prop up house prices

http://www.independent.co.uk/opinion/letters/letters-crazy-idea-to-prop-up-house-prices-7574269.html

The Government's NewBuy scheme is not the answer to our dysfunctional housing system and is just going to keep house prices artificially high, leaving people stuck with 95 per cent mortgages they can't afford. Should interest rates go up, buyers will be in even worse trouble.

The Mayor of London and the Government are in denial about the problems faced by Generation Rent in London, few of whom will be helped by this crazy scheme.

They could best help people trying to save a 10 per cent deposit by reforming the private rented sector, giving them more secure tenancies and doing more to curb the steep rises in rents.

We also have growing numbers of young families who bought their first flat and are now unable to move into a larger home. They need house prices to stabilise, but they now have NewBuy customers added to the mix of buy-to-let landlords, foreign investors and other buyers all pushing prices up.

NewBuy can be added to a long list of policies that prop up high prices while ignoring the reasons for our mess of a housing market.

Jenny Jones

Green Party Member of the London Assembly, London SE1

So the banks are keen on a scheme which will allow them to offer lucrative loans to people they would otherwise have turned down. Keen because the Government will stand security.

If somebody would like to put up the six-figure bonus I might be tempted to speculate that it was this kind of lending that brought about our current economic depression; until then this bitter and twisted ex-public sector worker will keep his opinions to himself, sure in the knowledge that history is not about to repeat itself as farce.

Martin Canning

Newbury, Berkshire

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HOLA445

NewBuy mortage scheme in crisis as lenders fail to support it, claims Home Builders Federation

The flagship scheme designed to revitalise the housing market and kick-start the economy is in disarray, as mortgage lenders fail to support it.

http://www.telegraph.co.uk/finance/personalfinance/borrowing/mortgages/9172348/NewBuy-mortage-scheme-in-crisis-as-lenders-fail-to-support-it-claims-Home-Builders-Federation.html

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HOLA446

Policy on the hoof.

Panic.

Unintended consequences.

And whilst there will always be risk taking lemmings where debt and houses are concerned, I think on this occasion and in this environment, the mainstream & majority are starting to wise up and see through this for what it is - dangerous.

There is a newsnight thread on main board. I caught a bit of it but missed the start - like Randall, some tough questions were asked, for a change. The I player could help - it was definitely worth a watch in my opinion.

It hasn't even been properly thought through by govt - weren't there other schemes of mortgage help which just helped a handful after a yr or so instead of the hundreds or thousands it was aimed at?

Schapps said it would be subject to review - which may happen sooner than he thinks.

NewBuy scheme is poorly constructed and lays no foundation for recovery

It's not just pasties that are causing George Osborne's Budget to prove problematic

http://www.telegraph.co.uk/finance/comment/damianreece/9172124/NewBuy-scheme-is-poorly-constructed-and-lays-no-foundation-for-recovery.html

As we reveal today, its NewBuy scheme is in trouble, too. Planned for months, it is designed to help first-time buyers own a new home. But it's already unravelling.

Like VAT on pasties, it's an example of a Budget measure that's ill thought through with unintended consequences and of dubious benefit.

Increasing the supply of new homes on the market through an artificial scheme underwritten by the state is not obviously in the interest of house builders trying to regain profitability and protect margins. Similarly, it's not obvious why it's in the wider economy's interests for the Government to increase the number of young people with 95pc mortgages - condemning many of them to instant negative equity. Both lenders and house builders have good reasons for steering clear to protect their commercial interests.

Add in the complexity of the scheme and it has all the hallmarks of a disaster in waiting.

The Coalition is impatient for economic recovery and wants to fund a building boom through subsidised mortgages - the sort of madcap scheme that got us into the credit crisis in the first place.

Recovery from recession induced by banking crises is notoriously slow. But risky, highly leveraged quick fixes such as NewBuy are no solution. Consumers will spend to turn the engine of recovery only when they feel more confident. That largely comes from job security and job prospects. Granting house builders, and all other employers, a holiday on the National Insurance job tax would have been a more meaningful and less risky Budget measure than trying to rig the housing market short term

Says it all, really

NewBuy: Home Builders Federation executive chairman Stewart Baseley's letter

http://www.telegraph.co.uk/finance/personalfinance/borrowing/mortgages/9172456/NewBuy-Home-Builders-Federation-executive-chairman-Stewart-Baseleys-letter.html

Edited by Shotoflight
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HOLA447

UK - first buy scheme not applicable here - juicy interest rates though

Mortgage lending up 20% in February

Rise in first-time buyer numbers behind overall increase in lending for house purchases, CML figures suggest

http://www.guardian.co.uk/money/2012/apr/16/mortgage-lending-up-february-cml

Mark Hollands, director of mortgage broker London Money, said he believed the rise in first-time buyer numbers would "almost certainly fizzle out" now the stamp duty holiday deadline had passed.

"While homes are marginally more affordable for some first-time buyers, for the majority of would-be homeowners property ownership remains a pipe dream. Lending criteria are too tough; the deposits required too large," he said.

The CML figures for remortgages show the number of loans fell by 3% in February and by 13% year-on-year at 25,500. However, just after the period covered by the figures several lenders announced increases to their standard variable rates, so it will be interesting to compare these figures with those for March.

Hollands added: "Clearly there is still a degree of interest rate inertia. Borrowers need to be extremely vigilant about the vagaries of the wholesale money markets which are driving up the cost of their loans."

Meanwhile, Halifax has released details of its mortgages for buyers who want help with their purchase through the government's NewBuy scheme.

The scheme offers lenders a guarantee to incentivise them to offer 95% mortgages on new-build properties. Halifax will be offering two deals: a two-year fixed rate at 5.99% with a £999 fee, and a fee-free deal with a two-year fixed rate of 6.39%.

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HOLA448

UK - New Buy

Basically a clusterf*ck.

New house price increase of 7.7pc fuels fear of a bubble

http://blogs.telegraph.co.uk/finance/ianmcowie/100016320/new-house-price-increase-of-7-7pc-fuels-fear-of-a-bubble/

House prices increased by 7.7pc over the last year among newly built properties, raising fears that Government initiatives to help first-time buyers could be luring many to overpay their way into negative equity.

Office for National Statistics (ONS) figures show flat or falling prices across the housing market as a whole but include a surprise surge in new house prices. Government intervention to help first-time buyers may have had the unintended effect of inflating debts young homebuyers take on while the real beneficiaries are builders.

The ONS declined to comment on why newly-built homes are fetching so much more than a year ago but confirmed that the number of properties sold had increased by “about 20pc”.

Needless to say the CML and the building industry have welcomed taxpayer subsidies for house prices that remain an average of 4.4 years’ pre-tax average earnings across Britain as a whole and an eye-stretching 6.4 times gross earnings in London, according to Nationwide Building Society.

As pointed out in this space last November, when the subsidy was first aired with the more limited scope of affecting only first-time buyers, there are significant dangers in market intervention. Amid a credit crisis caused by excessive debt, much of it secured to overpriced property, the Government is encouraging laxer lending to people with no history of repaying debt so that they can buy overpriced property.

You really could not make it up. Government intervention in the housing market – ranging from running negative real interest rates to the Stamp Duty holiday and, most recently, the NewBuy Guarantee scheme – have helped to underpin and even increase house prices, as today’s figures from the ONS demonstrate.

In the short term, ‘generation rent’ or rising numbers of people fed up with renting rather than owning their home may welcome any help to get onto the housing ladder. But Government intervention is unlikely to be of lasting benefit to anyone encouraged to take on excessive debt before interest rates rise from their current historic low and more homebuyers find themselves in negative equity.

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HOLA449

UK - New Buy

Basically a clusterf*ck.

New house price increase of 7.7pc fuels fear of a bubble

http://blogs.telegra...ar-of-a-bubble/

House prices increased by 7.7pc over the last year among newly built properties, raising fears that Government initiatives to help first-time buyers could be luring many to overpay their way into negative equity.

Office for National Statistics (ONS) figures show flat or falling prices across the housing market as a whole but include a surprise surge in new house prices. Government intervention to help first-time buyers may have had the unintended effect of inflating debts young homebuyers take on while the real beneficiaries are builders.

The ONS declined to comment on why newly-built homes are fetching so much more than a year ago but confirmed that the number of properties sold had increased by "about 20pc".

Needless to say the CML and the building industry have welcomed taxpayer subsidies for house prices that remain an average of 4.4 years' pre-tax average earnings across Britain as a whole and an eye-stretching 6.4 times gross earnings in London, according to Nationwide Building Society.

As pointed out in this space last November, when the subsidy was first aired with the more limited scope of affecting only first-time buyers, there are significant dangers in market intervention. Amid a credit crisis caused by excessive debt, much of it secured to overpriced property, the Government is encouraging laxer lending to people with no history of repaying debt so that they can buy overpriced property.

You really could not make it up. Government intervention in the housing market – ranging from running negative real interest rates to the Stamp Duty holiday and, most recently, the NewBuy Guarantee scheme – have helped to underpin and even increase house prices, as today's figures from the ONS demonstrate.

In the short term, 'generation rent' or rising numbers of people fed up with renting rather than owning their home may welcome any help to get onto the housing ladder. But Government intervention is unlikely to be of lasting benefit to anyone encouraged to take on excessive debt before interest rates rise from their current historic low and more homebuyers find themselves in negative equity.

The only problem with this arguement is the mortgage guarantee scheme has not started yet so we cant blame it for any upward blip in houseprices. The end of the STAMP duty holiday had probably more to do with it. However it was the ending of the government intervention that triggered this increase rather than its introduction. If it was the cause then house prices should drop after its removal.

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HOLA4410

The only problem with this arguement is the mortgage guarantee scheme has not started yet so we cant blame it for any upward blip in houseprices. The end of the STAMP duty holiday had probably more to do with it. However it was the ending of the government intervention that triggered this increase rather than its introduction. If it was the cause then house prices should drop after its removal.

I think you're right there. And typical IRs of 5.99 (profit taking or taking the p*ss?) quoted earlier may put some off.

http://www.guardian.co.uk/money/2011/mar/26/first-time-buyer-firstbuy

All the same Govt intervention of most sorts seems to be very stop start and sometimes at very short notice creating uneven 'blips', uncertainty and short termism - either pulling demand forward or benefitting certain sectors (new build, council buy, BTL, FTBs, Stamp duty tiers) perhaps at the expense of others (buyer types - movers and house types - resales). What I think all can agree on is that all govt intervention distorts. That's its purpose. And this current shower's record of thinking through is laughable.

What will they think of next?

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HOLA4411

Mortgage lenders undermining NewBuy scheme by charging high rates, say builders

Mortgage lenders are undermining the Government's flagship housing scheme by charging excessively steep rates, Britain's biggest house builder has warned.

http://www.telegraph.co.uk/finance/personalfinance/borrowing/mortgages/9215067/Mortgage-lenders-undermining-NewBuy-scheme-by-charging-high-rates-say-builders.html

Under the NewBuy Guarantee, launched last month by David Cameron, the state and the builder underwrite 95pc loan-to-value mortgages on new build homes.

The aim is to boost the economy and kickstart the housing market, but there are growing concerns that the banks and building societies involved are pricing products too aggressively to allow the scheme to take off.

"The concept is right and the demand is there," said Mike Farley, Persimmon's chief executive. "What is hindering its take-off is the rates. We are finding the affordability is not right because the rates they [lenders] have launched at are around 6pc."

Mr Farley called for lower rates and more entrants to the market. His comments come after the latest lender to join, Halifax, launched NewBuy products with rates at about 6pc. Meanwhile, NatWest and Barclays, two of the other three lenders backing the scheme, have already raised their NewBuy rates from those on offer at launch. NatWest said its initial rates were promotiona,l while Barclays said it had acted in response to demand.

Roger Humber of the House Builders Association said the scheme "is beginning to look as if it could be very embarrassing" for the Government.

Questions had already been raised about NewBuy after the Telegraph revealed a letter in which the Home Builders Federation, which helped to develop the scheme, said it was "not at all what was envisaged".

A spokesman for the Council of Mortgage Lenders said the rates are "not unattractive" for 95pc loan-to-value mortgages and that, although indemnity protects lenders, their pricing still has to reflect the risks involved

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HOLA4412

I wish the developers would make their minds up. Is it the deposit requirements or the rates FFS.

Just a few years ago SVR were at 7+% and 100+% LTV and everyone loved it.

Now they get 95% mortgages and 6% rates and it’s the end of the world.

NEWSFLASH - It's not rates or deposits - ITS PRICES.

Edited by 2buyornot2buy
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HOLA4413

As much as it is good to see that 'affordability' is being recognised and talked about regarding housing. They are still missing the point.

Where prices are at now, particularly in N.Ireland, they are only scratching the surface of affordability. I wouldn't like to quote any specific figures because I couldn't back it up, but houses in the lower end of the market are 'probably' in some cases, just about within reach for a small percentage of first time buyers - I would guess perhaps 10% of FTBers. This somehow becomes a 'Eureka' moment for VI's to attach onto (a sign of their desperation) i.e The bottom is here, some FTBers can afford to buy with Bank of Mum and Dad or Co-Ownership!! Tell all your friends the market is going to kick start, houses will start selling themselves again and we are all going to live happily ever after!!

It is just not going to happen. It's all fine and dandy having these schemes to 'kick start' the market but they are doomed to fail because house prices are not within the mainstream public's affordability. Further up the chain in the middle of the market asking prices remain static, even though the industry accepts that the market is falling.

Its a bit like trying to sell platinum to someone who can only afford to go to the half priced jewellers. Until prices come down to a level that the mainstream/average FTBer can afford then nothing else will change. IMO this is the biggest hurdle the Housing market has, getting FTBers back onto the market. As 2buyornot2buy has stated, it is the pricing that needs to change, nothing else.

Edited by tinbin
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HOLA4414

As much as it is good to see that 'affordability' is being recognised and talked about regarding housing. They are still missing the point.

Its a bit like trying to sell platinum to someone who can only afford to go to the half priced jewellers. Until prices come down to a level that the mainstream/average FTBer can afford then nothing else will change. IMO this is the biggest hurdle the Housing market has, getting FTBers back onto the market. As 2buyornot2buy has stated, it is the pricing that needs to change, nothing else.

I am naturally going to disagree. As for the vast majority of us the purchase of a house is not a cash transaction and credit is required. At the moment 80% of the transaction amount is paid in the form of a mortgage. The ability to avail of that credit and have the balance amount in cash is the main hurdle in purchasing the property. In a £130k house, dropping the price by £10k is of little help to someone who has a £10k deposit but requires £26k. The drop of £10k will mean he now needs a deposit of £24k.

When prices were rising to almost twice their current value there were twice as many, if not more people buying. Whilst a lot of this was the hype/fear/greed that goes with the boom none of it would have been possible without the abundant supply of credit. If fact the madness only stopped when the credit was withdrawn.

When something is predominately purchased on credit, then the availability of that credit is the predominate factor in the control of demand. Sentiment flows from the same fount. Unfortunately we still both collectively and individually (present company excluded) take the offer of credit as a blessing on our decision to purchase/borrow. Therefore 'we' see the banks decision to offer wholesale credit, as they did 6 years ago, as an wholesale approval of the asset they were funding. The removal of same has the opposite effect.

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HOLA4415

I am naturally going to disagree. As for the vast majority of us the purchase of a house is not a cash transaction and credit is required. At the moment 80% of the transaction amount is paid in the form of a mortgage. The ability to avail of that credit and have the balance amount in cash is the main hurdle in purchasing the property. In a £130k house, dropping the price by £10k is of little help to someone who has a £10k deposit but requires £26k. The drop of £10k will mean he now needs a deposit of £24k.

When prices were rising to almost twice their current value there were twice as many, if not more people buying. Whilst a lot of this was the hype/fear/greed that goes with the boom none of it would have been possible without the abundant supply of credit. If fact the madness only stopped when the credit was withdrawn.

When something is predominately purchased on credit, then the availability of that credit is the predominate factor in the control of demand. Sentiment flows from the same fount. Unfortunately we still both collectively and individually (present company excluded) take the offer of credit as a blessing on our decision to purchase/borrow. Therefore 'we' see the banks decision to offer wholesale credit, as they did 6 years ago, as an wholesale approval of the asset they were funding. The removal of same has the opposite effect.

You raise several interesting and valid points

The availability of debt and the concept of affordability are not unconnected. I like the theory reproduced elsewhere that affordability also includes interest rates/deposit and income. One reason for the debt disaster, for that is what it was, is that interest rates were too low (ECB rates for Ireland and London rates for NI) and income multiples went out the window as did deposits. Competition with many new entrant lenders - building societies, sub prime, specialist and foreign - all wanted a piece of the action and much of it was comission based and the risk offloaded into impenetrable traded products. So easy debt was a main driver but it was also mad debt.

Banks also miscalculated with trackers, egged on by Brown's no more boom and bust and that cretin Ahern's famous suicide diatribe. It wasn't only mortgage credit though - store and credit cards flourished with the likes of credit unions and the PMS. Students lost grants long ago and were encouraged to see educational debt as an investment as was all government spending. As banks become comfortable with extreme risk, many housepurchasers become comfortable with risky debt - or credit as it came to be called and which became an entitlement irrespective of circumstances or prospects. Many 'developers' simply lost the run of themselves and showed themselves for the hick, bit playing cowboys they really were.

What we may agree on then (I think) that credit and lending during the boom was irrational (except in the eyes of the bank) in terms of volume, cost, the credit worthiness of the borrower and the asset to be leant against. Now the damage can be seen and felt as taxpayers bailed the banks out (whether they wanted to or not) and developers pop left right and centre. And although interest rates remain at emergency distressed and 'short term' levels mad lending has been reigned in.

But lending and debt now goes on affordability. On interest rates, currently unsustainable in the medium to long term (perhaps indeed the short term) Lenders are decoupling from the BOE, requiring what would have been considered normal deposits and eschewing interest only and risky loans on falling assets. Small businesses are also finding that the days of running an enterprise on the debt and risk of the bank have come to an end - you must put some skin in the game. Banks cannot show forebearance and pretend forever if they want to move forward as viable, profitable entities especially as things worsen rather than improve.

So the availability of debt is a main factor but affordability to access that debt through borrowing costs (interest rates/deposits) and income to service that debt are now key. This sets price limits for what the majority of people can get and therefore the price of assets they desire - if sellers must sell. Previously it had nothing really to do with how much it cost to build the house or how much the seller paid for it as the main question a mortagee asked a bank was - how much can I have. And misplaced confidence in 'investment' alongside greed, stupidity and in some cases necessity took care of the rest.

So mad debt was the driver but affordability now overrides access to debt - the banks get it and most people are starting to. A return to normal sensible lending. Except affordability is becoming harder and harder as the economy stagnates and inflation is stoked by the emergency rates and QE, unemployment, pay freeze, no growth, low confidence and negative sentiment.

For sellers to sell, they must follow this downward affordability trajectory. This is what the banks and ergo debt availibility are doing.

Sellers will have at least another 3-5 yrs to get used to this concept, novel as it may seem. And rising interest rates will speed this up.

In the mean time, potential buyers have other issues to be getting on with.

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HOLA4416

I am naturally going to disagree. As for the vast majority of us the purchase of a house is not a cash transaction and credit is required. At the moment 80% of the transaction amount is paid in the form of a mortgage. The ability to avail of that credit and have the balance amount in cash is the main hurdle in purchasing the property. In a £130k house, dropping the price by £10k is of little help to someone who has a £10k deposit but requires £26k. The drop of £10k will mean he now needs a deposit of £24k.

Mathematically your logic is impeccable but I wonder about the underlying philosophy. Yes, drops in prices are going to make minimal difference in your example but perhaps it is just time to tell this person that they cannot afford it and need to save for a few years instead of willing back times when they could borrow more heavily. I strongly believe it is time that we started to focus on actual ownership of a property as opposed to the abstract 'bank ownership'. Property became totally disconnected from reality because very few people were actually spending their own money. Yes, down the line they would have had to pay it back but a great many people went ahead on the promise of price inflation saving them. The whole mentality went wrong and I think we are now in a much healthier situation. The money is available if you want a mortgage, you simply have to prove that you are well enough organised and funded to be able to afford it - anything else seems a bit daft to me.

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HOLA4417

I am naturally going to disagree. As for the vast majority of us the purchase of a house is not a cash transaction and credit is required. At the moment 80% of the transaction amount is paid in the form of a mortgage. The ability to avail of that credit and have the balance amount in cash is the main hurdle in purchasing the property. In a £130k house, dropping the price by £10k is of little help to someone who has a £10k deposit but requires £26k. The drop of £10k will mean he now needs a deposit of £24k.

When prices were rising to almost twice their current value there were twice as many, if not more people buying. Whilst a lot of this was the hype/fear/greed that goes with the boom none of it would have been possible without the abundant supply of credit. If fact the madness only stopped when the credit was withdrawn.

When something is predominately purchased on credit, then the availability of that credit is the predominate factor in the control of demand. Sentiment flows from the same fount. Unfortunately we still both collectively and individually (present company excluded) take the offer of credit as a blessing on our decision to purchase/borrow. Therefore 'we' see the banks decision to offer wholesale credit, as they did 6 years ago, as an wholesale approval of the asset they were funding. The removal of same has the opposite effect.

All right - so no mortgage, no deal. Your example could presumably afford the house if the price dropped to £100k, so that is the only way a sale will take place.

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HOLA4418

From BVI's example I find it encouraging that banks now require a 20% deposit for new builds. Hopefully some developers make the obvious link, if they want to see an increase in sales volume they need to reduce the price substantially.

A large percentage of new build sales must be co-ownership and momentum sales. Not a healthy market long term.

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HOLA4419
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HOLA4420

I am naturally going to disagree. As for the vast majority of us the purchase of a house is not a cash transaction and credit is required. At the moment 80% of the transaction amount is paid in the form of a mortgage. The ability to avail of that credit and have the balance amount in cash is the main hurdle in purchasing the property. In a £130k house, dropping the price by £10k is of little help to someone who has a £10k deposit but requires £26k. The drop of £10k will mean he now needs a deposit of £24k.

When prices were rising to almost twice their current value there were twice as many, if not more people buying. Whilst a lot of this was the hype/fear/greed that goes with the boom none of it would have been possible without the abundant supply of credit. If fact the madness only stopped when the credit was withdrawn.

When something is predominately purchased on credit, then the availability of that credit is the predominate factor in the control of demand. Sentiment flows from the same fount. Unfortunately we still both collectively and individually (present company excluded) take the offer of credit as a blessing on our decision to purchase/borrow. Therefore 'we' see the banks decision to offer wholesale credit, as they did 6 years ago, as an wholesale approval of the asset they were funding. The removal of same has the opposite effect.

You make a valid point, large deposits are an obstacle for some to buy, but to me your point is VI 'blinkered'... you are detaching yourself from the true reality of the situation we are in. Developers don't have to assess affordability for loans, so I wouldn't expect them to look at anything other than what they see as an issue for them. Banks do however assess the ability of a borrower to repay. You have to seriously ask yourself why are the Banks declining loans, why are they asking for larger deposits?? ... the affordability is not evident and the risks involved are too high for them.It really is as simple as that. All opinions aside about who else is to blame for the credit crunch and property crashes, the root cause of this mess we find ourselves in is the free availability of credit to fund the stupidity, madness and greed of the boom years. The fact that this free availability of credit to every Tom, Dick & Harry has now been removed is seen by VI's as a negative thing because you see this removal as a barrier to homeownership ... and obviously sales. It is a hypocritical view to me however that the general Joe Public blames the Banks ... those damn 'Greedy Bankers' for the financial mess we are in and is calling for more and more regulation of the Financial industry. When they get it ... they complain??? I don't recall ever hearing a VI talk seriously about affordability based on the current economic enviroment. To be fair, what actually qualifies them to make such sweeping statements when they do anyway?

Most of the Banks who fell into the trap of fuelling the 'credit boom' lent out money they simply didn't have. This is a point that is overlooked by many. From a liquidity/funding point of view the Banks who done this are now in an absolute mess.... VI's funded their profits from essentially the 'tick man' round the corner with Monopoly money. The financial/housing markets have been built on false pretences basically from 2000/2001 onwards, others would argue for the last 30 years or so. The FSA (Financial Services Authority) who regulate the financial services industry have put minimum funding requirements in place so these Banks in particular have a long way to go to get back to anywhere near a sustainable level for the long term future of the financial world. They are propped up with tax payers money and the only way they can get depositors money in is to offer above average interest rates on savings, which is now also having a knock on effect to rates they are willing to offer on their lending.

It is worth pointing out that not every bank got themselves into this mess, it is an assumption that the Banking industry will not lend money and that they all require 20% deposits for MTG's. There may not be 100's of MTG lenders tripping over themselves to offer loans, but at the end of the day you only need one MTG from one MTG provider, so if these FTBers stack up as well as it is claimed then I don't see why it is such an issue as there are lenders out there willing to offer them a 90-95% loan.The reality is that affordability cannot be demonstrated, therefore applications are being declined. This is saving people from themselves to be quite frank. While I cannot predict the future, I would anticipate that these folk will look back and realise that they have had a lucky escape. IMO ... I think it is more accurate to accept that the majority of FTBers cannot afford to buy at current prices, those that can should be able to find a MTG deal somewhere. I dont believe the sentiment is there to buy as the vast majority accept that the market is in decline.

It really is time to start getting real, when Co-ownership & the Bank of Mum and Dad are the main drivers for FTBers to get onto the property market, the issue is with the pricing. If a VI's business plan is based on folk hanging themselves with debt then I think society & home ownership has a problem that isn't going to sort itself out soon. If prices dropped, more houses would sell.

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HOLA4421

Article touching on proposal from the Independent Commission on Banking re Mortgage Lending. (posted here as Mortgage availability/requirements has been discussed above)

Nationwide fears loan curbs could hit mortgages

Nationwide Building Society is warning that a shake-up aimed at preventing lenders from overstretching themselves could have the unintended effect of curbing the number of loans available to homebuyers.

The society and other leading mutuals have been holding talks with Treasury officials over a key proposal from the Independent Commission on Banking that would limit how much financial groups could lend against their core capital.

Nationwide and others believe this could unintentionally penalise building societies that have high ratios of lending to capital, but whose loans are prime residential mortgages and so very low risk.

He said it could force them to restrict the amount of their lending in order to keep their assets down.

Rennison said he was hopeful the White Paper would not impose Commission recommendations without modifications.

Options that have been discussed include paring back the ratio from four per cent to the lower level of three per cent for all firms including large retail lenders.

Another option would be to exempt some lenders from the target or allow them a looser target if they met certain criteria including being primarily a mortgage lender and using mainly retail deposits for funding rather than more volatile wholesale markets.

A third suggestion is to publish the leverage ratio, but not set a fixed requirement.

http://www.thisismoney.co.uk/money/mortgageshome/article-2133239/Nationwide-fears-loan-cubs-hit-mortgages.html#ixzz1sxJNPCGR

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HOLA4422

Thanks for the good and thoughtful replies. I think, whilstwe wont want to admit it we are fairly much in agreement. Nobody wants the madlending to both developers and house purchasers that we experienced six yearsago. Even the most short sighted developer will want to go through the 08 to2010 period again (not that it has improved much since).

However, I remain of the view that the availability ofcredit at a suitable L2V is the major item holding back sales, not price.Others will differ in their view from that and I accept that.

Affordability, put simply as the ability to repay the loan,allowing for increases in interest rates remains a core requirement to anylending. This is not new. It was there for decades and was simply cast asidefor the mad years. It is of course reinstated now and should never be removedagain.

Lenders ‘buy’ their money priced at risk. The higher the L2Vthe higher the risk and the less high L2V they will want to issue. NI is 2 or3% of the whole UK market. So RBS, Halifax etc is not going to specificallypurchase tranches for NI. They forward buy for the whole UK and it is risked accordingly.The fact that NI has had a 50% correction and the UK has not make no differenceto the small tranche they are putting out in NI.

So it is not true that they think prices are going to fallmore and that’s why they have low L2V. If they were that clever we wouldn’t bein this mess.

They know they are is a catch 22 situation. I discuss thiswith them and they know it. Until they start lending properly the prices wontrise. If the prices don’t rise the risk is still weighted high. If the risk ishigh they want to issue lower prices L2V products. This keeps demand down asvery few have £25k deposits.

You just have to see what has/is happening in England whenthe Newbuy cover, which this topic is about was issued this week. Hay prestothe lenders are suddenly issuing, what I refer to as proper mortgages. Youstill need £10k deposit and that’s fine. But that would, in my opinion doublethe amount of buyers. Which I believe we need.

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HOLA4423

I think BVI you have trouble grasping that if your prices fell, the banks would price their risk of further falls accordingly. Realistic prices = realistic deposit and interest rates.

I suspect the majority of your sales are with a 20% deposit because banks think further falls are likely.

My prices have fallen perhaps 40% to 50% from what they would have been if I had them in 2007.

In 2007 you needed no deposit (which was mad). Now as you say we need 20%, which is too high. As discussed above.

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HOLA4424

All right - so no mortgage, no deal. Your example could presumably afford the house if the price dropped to £100k, so that is the only way a sale will take place.

No in my example a deposit of £26k was required to purchasea house of £130k. The example purchaser, who complied with the other criteriaonly had a deposit of £10k. Dropping the price of the house by £10k to £120konly saved the purchaser £2k on their deposit requirement. They now required adeposit of £26k.

Your example of dropping the price of the house to £100klowered their deposit requirement further, but only to £20k, which is stilltwice as much as they have. Remember the bank was willing to lend them £104 atthe start.

To enable the purchaser to buy, with their £10,000 as a 20%deposit the house would need to drop in value to £50k

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HOLA4425

I think BVI you have trouble grasping that if your prices fell, the banks would price their risk of further falls accordingly. Realistic prices = realistic deposit and interest rates.

I suspect the majority of your sales are with a 20% deposit because banks think further falls are likely.

would it also most likely come down to what the agreed price is and what the bank valued at?

say PERSON A agreed at £100k, RV of £115k, and bank value at £115k, 10-15 % deposit

or PERSON B agreed at £125k, RV of £115k and bank value at £115k, 20% deposit

.... Who would you rather lend to, or the bank for that matter?

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