Sunday, Feb 24, 2008
Lenders Believe that Houses are Overpriced
Guardian: Homebuyers told to pay 25% deposit or penal interest rate
"Nationwide will tell homebuyers today that unless they have a deposit of 25% or more of the value of a property they will face higher mortgage rates, in the latest illustration of the clampdown on lending caused by the credit crunch." I say the banks are factoring in future house price drops into their mortgage calculations. The boom is well and truly over.
Posted by quiet guy @ 11:50 PM (897 views) Add Comment
9 Comments
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1. drewster said...
Ray Boulger said: "The ECB is accepting mortgages as collateral, while the Bank of England is being pretty unhelpful. So anyone with a parent group that is based in the Euro area, such as Abbey or Bank of Ireland, is able to tap into funds that aren't so easily available to the pure UK retail banks."
Does this mean that Abbey and B.o.I. are borrowing funds in Euros to back mortgages in Pounds? Surely that's a recipe for disaster - one moderate currency swing and their profits could be wiped out! Or is the ECB accepting Pound Sterling mortgages as collateral to borrow Euros? Something doesn't seem right here.
(Note that Bank of Ireland also provide mortgages under the names Bristol & West and Giraffe Money)
2. japanese uncle said...
Today it's 25%. Tomorrow it will be 50%. And ultimately they will stop lending to any new customers, but maintaining existing customers only. People will have to buy houses only in cash, but then house prices will have to come down to the level at which people can afford to buy houses only in cash. Logical sequence of events.
3. voiceofreason said...
JU - surely the prices will only fall until a stable 3.5 x earnings level is reached .. ?
4. japanese uncle said...
No, current pace of credit crunch implies, that house prices are likely to overshoot the equilibrium to reach 3x or even 2.5 x level at some point, then coming back to 3.5 x level. Likely development.
5. Orwell said...
Sorry JU that's a bit too absurd... Even though I do appreciate your insight.
6. A Saver said...
So if all the banks take this stance, many people coming off a fix won't be able to remortgage? Not looking good for BTL! Did anyone notice in the US article posted yesterday the example of a house in a desirable location that sold for less than its price FIVE years ago -even with improvements equal to the original purchase price (ie >600,000 spent sold for $290,000)? Think this illustrates how much worse things can be than official figures suggest.
PS Webmaster, things disappear of the page fast and the archive loads very slowly so my gateway times out.
7. mark wadsworth said...
VoR hits nail on head. Current price-earnings about 7, depending on whom you believe, long run average about 4, at the bottom of the market (when it always overshoots a bit) about 3.5.
8. george monsoon said...
I'd better start saving then, being a FTB and all..
Looks like I will be a renter for life, that is until I have to stop work, can no longer pay the rent and get booted out to live in a cardboard box when Im 65.
9. Fed Up said...
Agree with some of the above sentiment. House prices will probably fall to below 3 x gross salary, then stabilise at just above, roughly at about 3.5 x gross salary.