Monday, Jan 14, 2008
Mortgage lenders cut maximum borrowing level
Reuters: Mortgage lenders cut maximum borrowing level
Eleven mortgage lenders have reduced the amount of money they will lend to home-buyers, as expectations of a property price slowdown grow.
Posted by bobed @ 07:28 PM (398 views) Add Comment
4 Comments
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1. stillthinking said...
I do realise this has been pointed out before (not by me) but such a great comment on something I hadn't even thought about, here it is again, copied for the quote, as a reminder.
"Meanwhile, Alliance & Leicester, Scottish Widows Bank, Barnsley Building Society, Britannia Building Society, Egg and Pi have cut the maximum amount they will lend to 90 percent of a property's value from 95 percent on at least some products."
So 10K which would have allowed you to get a mortgage on a 200K property suddenly can only get you a mortgage on a 100K property.
I think its because its measured from 100% down that makes the value misleading. 5% required -> 10% obviously doubles, but 95%->90% doesn't seem such a big deal. When all and sundry were offering over 100% doubtless nobody worried about it. Should this drop further across the board, given that very few people have 30K saved as a deposit, essentially its tantamount to closing to new arrangements.
2. inbreda said...
Everybody needs to stop what they're doing and concentrate on the above comment by stillthinking.
Really. It is well worth it. Think it through. It is very very scary.
3. enuii said...
Logical thinking in the cold light of day, a pause for breath and a pause for thought, perhaps sanity has returned.
4. quiet guy said...
Why is this so scary Inbreda?
It is one aspect of a logical and necessary asset price correction.
What is somewhat worrying is that money supply contraction will restrict credit available for productive business investment. To give an oversimplfied example, for every £10 lent by banks, up to £100 total lending may occur within the banking system. When banks cut back access to credit for commerce then there is potentially £100 less money invested in profitable commercial activity. For me, that's the scary bit.
Or have I missed something?