Wednesday, Apr 11, 2007
6 X Pain!!
Telegraph: Mortgages on offer for six times salary
Lenders are offering mortgages equal to six times salary to first-time buyers desperate to get a foot on the property ladder as house prices soar out of reach.
Posted by nearly30 @ 08:44 AM (140 views) Add Comment
36 Comments
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1. Davros said...
Supposedly there isn't a sub-prime mortgage problem here?
How anyone can exist with a six times salary mortgage is beyond me.
2. george monsoon said...
Well this has to be the pin that pops the balloon!
Can you imagine how 0.5% increase in the baserate will affect anyone who earns 23,000 a year and borrows 6x their annual wage? Most of these people are just starting out with young families.
There is only one harsh soloution. Tighten lending practices and bump up those interest rates....
3. Nearly30 said...
george - they say this 6 X will be for 'Gold Standard' Borrowers - oh yeh!!??
"They would earn more than £100,000 a year and take out a loan with a rate fixed for more than five years
Rubbish - so everyone else that gets 6X wil have just 'slipped through the net'.
Classic lax lending based on a 'reasoned' original idea that doees not extrapolate - and just becomes common practice in benign conditions - a bit like the last 10 years then!.
4. sovietuk said...
Do people understand the risk that they are exposing themselves to? Interest rates will stay below 6% for 25 years????? There will not be a major economic downturn in the next 25 years??????? The UK economy is fundamentally sound????????? Please remember just giving the keys back to the building society when it all ends in tears isn't good enough. They come after to you for the shortfall and bankrupt you as well. Think carefully before taking out that 6 x mortgage.
5. denzil said...
This is no surprise and is bound to happen. The 30-35 year mortgage on a 6 multiple will be next. Until such point that the lenders start to feel real pain this will continue. Unless there is an event to cause a crash e.g a large leap in base rates or recession the only way to stop the whole thing going "bang" is a massive house building program, the type of houses people not investors want.
6. geed said...
"It is no more scandalous to lend six times income at current interest rates of around five per cent than it was to lend three times income when interest rates were three times as high in the early 1990s."
Halleluiah! I’ve been saying this for years on this site! Low interest rates mean nothing unless they are applied to a principle sum, whether borrowed or invested.
Mr Gardner has beautifully shot himself in the foot. He has essentially told us that it costs the same to borrow at today’s interest rates than it did when they were 3 times higher in the early 90’s. So we DON’T have historically low “real” interest rates at all.
And the early 90’s was a brilliant time to invest in property NOT! So what is different now Mr Gardiner? I cant believe he spun this dribble in a positive light.
7. The Baldman said...
Should have a campaign. Just say no to the money offering too much money!!
8. Scott said...
This looks like a desperate attempt to re-vitalize first time buyer interest to aid those further up the chain trying to cut and run. It won't work.
9. taffee said...
its all so late 80's...literally a repeat.
10. Jim Tallis said...
Whilst I'd welcome a property price crash I get the impression that people are not really reading what this article says. Most mortgage companies will only lend 6x times earning to those with incomes over £100,000 and with a good credit record. I doubt's a 6 time lending ratio would be applied to someone on the so called average salary of £23,000.
11. Chillilizard said...
"The most generous lending will tend to be to dual income couples with little or no debt and no children" - great for couples who don't want kids in the next 25 years!!!!
12. paul said...
But according to the MPC, there's nothing to worry about. Inflation will go down any month soon, house price inflation is not a problem, debt is not a problem and social consequences of not being able to afford a house are not a problem.
I think the MPC are living in la la land.
13. royston said...
IMHO, the 'caveat emptor' position of the government and the Bank of England is like the Nazi's issuing a warning not to breathe the gas to the concentration camp Jews!
Tony/Gordon/Mervyn,
Enough procrastinating and buck-passing. There is a major national problem here. It can be remedied by legislation and policy. Now, get on and do your jobs or get out of the way!
14. confused76 said...
"It's deja-vu ... all over again" (Yogi Berra)
check this 1997 Royal Economics Society article summary on housing market volatility
http://www.res.org.uk/society/mediabriefings/pdfs/1997/November/muell.pdf
15. Adam said...
My very basic calcualations:
Two people earning between them 45k borrow 225K, monthly mortgage repayments are roughly £1300, they take home about £2500, £200 on food, £200 on bills, £100 on council tax, that leaves them with about £700 per month over.
That is still quite a lot left over, I am being optimistic in my calculations I know. A 0.5% rise in their mortgage would mean £75 extra per month. If most people are on fixed rates then this will not affect them anyway.
Believe me i would like to see prices tumble more than anyone, but unless I am missing something here, it will not happen for a while yet. On normal price predictions it will take about 3 years before houses become unafordable (based on a 10% rise in prices each year) even for a couple of people on average earnings borrowing 6 times their salary. It could unfortunately go on for longer, maybe 5 years. I know that when it does crash it will be unlike any other but that's too long for most of us.
Pity the people who have to pay these massive amounts per month but that was their choice.
So the only thing I can see breaking the whole thing is that the system is being powered by greed. Everyone that benefits from the whole housing business will want more and more profit and ultimately they will send the whole thing crashing down earlier.
I haven't factored in credit card debt but i haven't seen it affect anyone so far, nobody seems to care about debt anymore.
16. taffee said...
what is sad is that a hpc will result in family break up,divorce,depression and suicide for some.The last crash put us in the social mess we are in today,mind you do the government care?.....they went to war on a lie and look at the mess there....100s of 1000s dead.
17. harold said...
They all know it's an unsustainable mess that will blow up. They're just praying that it doesn't blow up in their faces and that they will be gone and out of office by the time it does. Where was Lawson - the chief architect of the late 80s boom - when it all went t*ts up? Running a mile and promoting his talentless daughter’s career in journalism and beyond... yawn.
18. Scott said...
Taffee, the house price crash will be a correction in a bigger sense. So many people in debt will lead to higher crime, which will only ultimately be deterred by harsher police powers and sentencing, which is what the UK lacks at the moment anyway. It will be a correction of house prices, law and order and other things. Overall, things will be better afterwards.
19. geed said...
I find it astounding that the "economical minds" still find it possible to rebuff any parallels drawn with the last crash. Unfaltering blind ignorance? Or sickly greed fuelled by vested interests?
20. David20040_0 said...
A couple of months ago I predicted that the banks would start offering higher lending multiples of up to 6* or maybe even 7* times salary, many of you guys said it would never happen and yet now it is.
How long before house prices boom even further and then banks are offering even higher multiples of salary?
21. Sam said...
I wonder what will happen when people start moving back to poland and eastern europe.
22. geed said...
"econimical minds"! Hardly, Freudient slip perhaps, try "economic minds".
23. taffee said...
A great philosopher said that whilst most people in government or business like to believe they are doing their best for the cause,that are actually in it for themselves and are more than happy to do the wrong thing to keep their jobs.They will lie cheat and steal for this purpose,whilst the people who would actually do a good job are kept in the sidelines.
24. confused76 said...
BoE, journalists, economic commentators (i.e. failed academics with a licence to write)... remind more and more of Comical Ali... bombs over Bagdad? what bombs? we are killing scores of infidels!
25. Converted Lurker said...
Guys, seven times are available in you know where to look. This six times will only be available if you earn approx. 100K+ per annum and have 20-25% deposit.
26. sovietuk said...
With the polar icecaps melted by 2020, borrowing 6x your salary dosen't seem like a very good investment for many people as your house will probably be just submerged under water. Scary map of UK under water here http://news.scotsman.com/uk.cfm?id=710322005.
27. Fahrenheit451 said...
4x income over 25 years is ok
6x income over 25 years with a low start for 1 or 2 years is a disaster.
However ... 6x income for an index linked repayment mortgage over 35 or 40 years should work out.
Hey why not get a 10x income mortgage over 99 years - then a lease extension for the next generation.
Durr, that's why there are so many 2-bed flats being built - with 99 yr leases so you loose everything when the lease is up anyway.
Why buy, just rent and be done with it.
The main problem is unrealistic expectations.
Correct me if I'm wrong, just going on hearsay ...
In a Communist society they idealise about a zero rate inflation - it does not work, you get a revolution.
In a Dictatorship you get anything over 25% but probably 50% inflation - you get a coup.
In a Capitalist eceonmy you need about 4% or 5% inflation with interest rates hovering just below 10% - will an election help or will it just be more of the same.
Its all going to end in tears, they havn't a clue about what they are doing and tinkering with the tax and base rate and budgets ain't gonna help.
28. denzil said...
geed said:
>>find it astounding that the "economical minds" still find it possible to rebuff any parallels drawn with the last crash.
There are hardly any parallels with the last crash. There are many parallels with the last boom but the last crash was pretty much caused by people being unable to cope with a huge increase in mortgage payments through higher IR's and also redundancy. Neither of those two issues are even a blip on the radar at present.
29. tony marshall said...
"The most generous lending will tend to be to dual income couples with little or no debt and no children."
And sterilised, presumably..?
"First-time buyers may be spending 18 per cent of their income on interest payments, but in the early 1990s, people were spending more than a quarter of their income."
Where is he getting 18% from? Interest at 6%pa on a loan of six times income amounts to 36% of gross income. For someone on £100k, after tax and NI it's 56% of net income. These people just don't stop to do the arithmetic.
30. taffee said...
During the last crash people did not have anywhere near the debt on loans and credit cards they have now and bills were proportionally dirt cheap.
31. Adam said...
Here is some of my very basic arithmetic:
An average couple on a combined income of 45K buy a house for 225K, The monthly mortgage is 1300 their take home is 2500.
200 on bills 200 on food 100 on council tax ( i know this is probably too low ), that leaves them with 700 to play with.
If the IR goes up 0.5% that is an extra £75, most people now are on fixed rates.
I would like a HPC as much as anyone but it seems to me that this could go on for a long time yet, as long as their is money to be extracted from housebuyers it will continue.
Along with houseprices going up about 10% it could go on for 3 to 4 years before a house becomes really unafordable.
The whole thing is driven by greed, this could be what undoes the whole system. Anybody making a profit from this madness will want more and more, hence accelerating the final outcome which is a crash.
Anyone doubting that there will be a crash has to ask themselves how many FTB could afford a 1 bed flat at 300K in 4 years, it has to happen sooner or later.
32. tyrellcorporation said...
How exotic, an archepelago! Where's London gone? ...oh well...
33. royston said...
During the last crash, people weren't trying to replace failed pension plans with BTL property investment on anything like a similar scale either.
34. george monsoon said...
beauty is only skin deep but ugly is right to the bone.
Says it all really, a nice polished front on our British face to the world and underneath the whole thing is rotting away.
You dont need to have a background in finance to see the strings on this puppet (MPC). This government is getting away with murder and nobody, but nobody is doing anything about it. What are YOU doing? yes YOU who is reading this, except complaining on here. This site just highlights awareness, which in its self is useless without the drive to actually go out and kick a few arses.
Is there a militant web page for affordable housing?
35. Adam said...
As an example of house price madness, my brother bought a 1 Bed in West London in 1994 at 78K, you could feel that prices were about to go up.
By the way in 1994 this was still quite a lot for a 1bed and it was a heap of sh**t, he bought what he could aford at the time.
2 years later the same heap of sh**t is worth 135K, all with the same rising damp, flaky plaster and small rooms.
He finally sold in 2006 at 190K not bad.
I mean the flat really is not worth 30K let alone 190K, if we had land that we cold all build on and prices were based on building materials and labour none of this would ever happen.
36. confused76 said...
On the question of the economic convenience of rent vs buy, even Abbey's annual report on this subject shows that in roughly half of the country is better to rent. By the way, even the rosey picture painted by Abbey has been deteriorating over time.
http://www.thisismoney.co.uk/mortgages/mortgages/article.html?in_article_id=409763&in_page_id=58
Then I stumble on this other link (HIGHLY RECOMMENDED) which shows how there is an oiled machine behind the home-owners-better-pay-mortgages propaganda:
http://www.tvnewsrelease.com/news.asp?ActionId=113
Lastly, you may want to listen to the US interview of an editor of The Economist being asked (in 2005) "unbelievable, are you saying the US housing market may crash?"
http://www.npr.org/templates/story/story.php?storyId=4531732