Wednesday, Mar 18, 2009
The view from a first time buyer....
The motley fool: Has the Government gone insane?
''First-time buyers today face a genuine struggle to get on the housing ladder, even those who have not overstretched themselves and are looking to buy a modest starter home. I know, because I am one. And if these rules come in I will not be able to get a mortgage that I could easily afford.''.....mm
Posted by fun 4 now @ 11:04 PM (1732 views) Add Comment
36 Comments
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1. tinker said...
There really are some stupid people about, they just don't get it: too much credit, prices go up; reduced credit, prices come down.
FTB should cheering from the rafters, whilst tyring to put away some money for a reduced deposit.
I suppose these people who don't get it, will believe high house prices are due to under-supply.
Such is the power of the media in this delusion.
2. Rimmer said...
Quote "And if these rules come in I will not be able to get a mortgage that I could easily afford.''
And what interest rates over 25 years are you sure you can afford and what guarentee do you have you will stay employed fully the next 25 - 30 years i wonder?
Why will you not be able to get a mortgage then " if you can easily afford one" - My mind can only wonder
3. Chris said...
See: http://www.youtube.com/watch?v=IySihy9mLLY&feature=player_embedded
Restricting lending based on income multiples is madness for many of the reasons you have described.
People are currenly struggling due to unemployment and had they taken out payment protection insurance, they would have been fine!
It makes no difference how much you have borrowed (3-times or 5-times your salary) if you lose your job and have to live on unemployment benefits!
All this will do is prevent first time buyers getting onto the ladder leaving the buy-to-let investors to snap up the cheap properties again and renting them back to would-be first time buyers!
BTL mortgages do not factor in the investors salary, only the rental potential of the property!
First time buyers could be forced to take out a BTL mortgage instead and rent the property out to someone else for a year and then move in themselves, but the rates for BTL are slightly higher!
4. Grumpy Middle-aged Git said...
It worries me that someone is prepared to pay this person a salary to be a journalist and more importantly that the editor has allowed such a crass piece of reasoning to be published. I don't know "the motley fool" but I certainly won't be buying it.
5. Damocles said...
I think you said it yourself. If the government introduced measures which restrict mortgages, as you say prices will fall. If prices fall then a first time buyer has to borrow less money and ends up with less debt. So as a propspective first time buyer you should be screaming for tighter mortgage controls. As you also said, at the moment lenders are very cautious so it doesn't really matter if the government introduces tighter restrictions or not, they will still be less than the market is using itself. But sooner or later things will sort themselves out and everyone will forget. Then the lenders will go back to lending more and more, pushing up prices again. Then there will be another bust. Do you really want this all over again? The best outcome would be a managed fall in prices in real terms (which if inflation kicks in again might mean a gentle numerical rise), but there is a real risk of a catastrophic fall, all because this credit boom allowed prices to go so high.
6. d'oh said...
Tragic watching someone argue for setting up an own goal like this. Yet more proof that the education system has failed to instill a modicum of critical reasoning ability into people.
7. quiet guy said...
"bear in mind that house prices have risen much faster than incomes over the past decade"
Due to an glut of cheap credit. Sadly The Fool is living up to its name this time.
8. techieman said...
"First of all, we don't know how the proposals will affect existing borrowers who borrowed more than three times their income. If the new rules are blanket across the market, then many borrowers will be left with nowhere to remortgage at the end of their deal, and could be forced to take whatever rate their existing lender is willing to offer." ... and?
"The average first-time buyer earns about £26,000 but under the new measures would not be able to get a mortgage of more than £78,000. The average UK house price is £160,000." so a FTB adocates reaching the market armed with an over-burdening debt rather than the market adjusting to the fact that the mortgage availability is reduced? Turkeys & Christmas spring to mind.
Even the following is poorly written "And if these rules come in I will not be able to get a mortgage that I could easily afford." Thats ambiguous but i think he means ...if these rules come in I will not be able to get a mortgage, even though i would easily be able to afford it...
Of course you will be able to easily afford it because rates are low. Shortsighted at best. It makes me wonder if this was written by someone posin as a FTB or if it a FTB then are people that indoctrinated towards getting on the ladder that they are blinkered toward measures that will actually assist them in not being mortgaged to the hilt. In fact its these people that given the chance would just get the biggest mortgage they could "afford" and gear themselves up beyond prudence.
Endemic of the society in which we live?
9. Sybil13 said...
Has Motley Fool not Lovemoney been taken over by estate agents or something? They used to run such inteligent articles about why house prices need to fall. As most of you know if you read this site regularly, I am just about at the end of my tether with spin, and the FSA's announcement clearly was meant to have this effect, that is put out the message that IF YOU DON'T BUY NOW YOU WILL NEVER BE ABLE TO AFFORD TO. But what these articles FAIL to point out that property prices, if the government would STOP the spin have to fall 40- 50% for most to be able to afford them without irrepsonsible overlending and borrowing. According to the Times Online yesterday 5.2 million people will be looking for their first home in the next few months, lets just hope they are WELL INFORMED BUYERS and not one's put into a panic by the papers now saying YOU WILL NEVER BE ABLE TO AFFORD A HOUSE IF YOU DON'T WAIT. Instead of saying IF YOU DON'T WAIT YOU WILL JUST ADD TO THE 6 MILLION ALREADY IN NEGATIVE EQUITY. The FSA said it would consider capping if prices started to inflate again, THINK ABOUT IT, if people can't afford current prices at 3x's income, and the FSA are saying they will introduce regulation on 3x's income if prices start to inflate, they they MUST be thinking prices are going to fall in line in the future to 3 x's income ratios. FIRST TIME BUYERS WAIT - SELLERS REDUCE NOW 30% OR MORE BECAUSE SOON YOU WILL HAVE TO REDUCE 50% that is what needs to be reported.
10. str 2007 said...
tinker, techieman
I said in a post a couple of days ago that these measures will have the opposite psychological effect on the people they are helping and those whose property values will fall.
I was right about that judging by this.
As you say the Sheeple just don't get it and have successfully been hypnotized by the media into thinking a big multiple from a lender is some kind of helping hand to the FTB.
Does any FTB think beyond their 1st house, ie after about 5 years they'll want/need a family house and one of the wage earners should (IMO) be looking after kids if they're lucky enough/ choose to have them.
Therefore things will always be a stretch for a FTB, but 5 x & upto the eyeballs in debt puts future progress into serious jeopardy.
BTL's should certainly be curtailed from pricing out owner occupiers.
Anecdotally HSBC have just offered me over 4.25 x JOINT take home pay. (based on 40% deposit). So there's plenty of money being leant at present. More than I'd be prepared to take on anyway. So collapse is still away off yet IMO.
11. crunchy said...
Trying to defend the undefendable.
As with any easy credit binge it's the first in that get the cheap loan because easy credit creates inflation over time. Don't be the last in the line.
Inflation was BOE's remit. They failed.
Prudent lending, the banks remit. They failed.
Borrowing within one's means? the public failed.
I am not propping up a system that has failed across the board. The people that were too late will have to take the hit, They failed!
Why should I pay double out of my nearly static wage than the person who bought just a few years before me. If I did that, I would fail.
FAILIER THE NEW SUCCESS!
12. str 2007 said...
This may sound a bit back to front but keep with me on this.
I don't know if any of you remember the abolition of MIRAS (dual tax relief for mortgage holders). The Conservative government announced the decision in Spring Time to take effect at the end of August in I think 1989.
This had the effect of creating a buying frenzy in an existing bubble. The end of MIRAS also became the end of the housing market, the bubble burst as soon as the incentive to buy vanished.
Leaking the information that mortgages may be cut back to 3 x lending, whilst good for FTB's I suspect as I've previously mentioned have the opposite psychological effect and create a ''get in now before they cut back lending or you'll never get on the ladder'' mentality.
Are the government clever enough to deal in a bit of reverse psychology to 'boost' the housing market ?
13. bystander said...
The only problem with your hypothesis str 2007 is that the conservative government created a mini boom on top of already rising property prices, and then the market crashed when Miras was withdrawn, this time the market is already crashing and the general public are much better informed now than they ever have been in the past. This will not create a mini boom, but will make most even less likely to buy, as, if the 'new' lending criteria are brought in, in September the property market will sink like a stone from its already lower level. It is more like the stamp duty mess when anyone looking at properties around the 150-200K mark held off from buying, this is exactly what is going to happen now, as people wait to see what it is exactly HMG will do. IMHO.
14. house said...
I thought that the average house price calculation was the average of taking into account all the property prices ie. Lowest to the Highest. This means that if he is measuring the borrowing of £78000 against £160000 cannot be right. He is not comparing like with like.
No doubt somebody can throw some light on this and perhaps enlighten the poor chap.
15. inbreda said...
"We've had to take article comments down temporarily as we set up our new home on lovemoney.com, but new comment tools (and your old comments) will be back soon."
Can't imagine why.
16. str 2007 said...
bystander
You could well be right. But I'll bet the the average FTB thinks it's a bad thing lending may be restricted not a good thing. When in actual fact the reverse is true.
Earlier in the week I thought it was going to be an overnight new piece of legislation that would have found the bottom of the market very quickly.
I should have realised just how daft the government are.
In all honesty I think it unlikely this 3x cap will be intoduced but it doesn't create a buying atmosphere for me with it hanging over the market.
17. dbc reed said...
@str 2007 Entirely plausible that the Guv/Fsa leaked their own Turner Review inaccurately to whip up a reaction between now and September to suggestions of x salary mortgage restriction.
As someone has already noticed elsewhere, the fall in house prices entailed down to 3x salary for people with low incomes would mean houses would have to be built for prices that might only cover the bricks and mortar costs and include precious little for the land( that is the inflationary element, where the developers aim to clean up)Faced with "giving away" land , the developers would probably stop building (cheap houses especially),sit tight and wait for a change of government. It may be that a land value tax will have to be applied at the same time as the X salary restrictions , to make sure the cheap houses get built.
18. crunchy said...
11. str 2007 said...Leaking the information that mortgages may be cut back to 3 x lending, whilst good for FTB's I suspect as I've previously mentioned have the opposite psychological effect and create a ''get in now before they cut back lending or you'll never get on the ladder'' mentality.
Are the government clever enough to deal in a bit of reverse psychology to 'boost' the housing market ?
crunchy-With respect, it's you that's being too clever. If you read it again it is counter productive. Why rush in on a market that has been
capped and doomed to crash? Nu Labour are clever, but only in a destructive way...track record!
19. crunchy said...
Re post 17
How do you think banks will react to a capped market? More of the same.
20. techieman said...
STR2007 :This may sound a bit back to front but keep with me on this.
"I don't know if any of you remember the abolition of MIRAS (dual tax relief for mortgage holders). The Conservative government announced the decision in Spring Time to take effect at the end of August in I think 1989.
This had the effect of creating a buying frenzy in an existing bubble. The end of MIRAS also became the end of the housing market, the bubble burst as soon as the incentive to buy vanished."
Yes i sold into that last bit of buying frenzy then... i remember being the "nutcase" that the EA referred to since i told him i was not buying when i sold that property. IMO you are right - booms are always finished by a catalyst, which the lemmings can only put their finger on AFTER the event. This time i sold too early BUT looking back now the catalyst for this period when i said aha there it is, was NR.
"Leaking the information that mortgages may be cut back to 3 x lending, whilst good for FTB's I suspect as I've previously mentioned have the opposite psychological effect and create a ''get in now before they cut back lending or you'll never get on the ladder'' mentality"
Yes thats a fair point but the amount of people actually able to take "advantage" of this will, in my view, not be enough to create a huge counter-trend rally UNLESS the lenders play ball. Eg by using some of the money from QE etc. Could that happen? If it were to wouldnt that cause a DCB?....hmmm now where have i heard that before!
BTW hope you got "Reminices.." and are enjoying it, although as i said i would go for "trading Wizards" - there are at least 2 volumes of em.
21. Chilli said...
Proof that you can argue any point as long as your arguments are devoid of sense.
And if it is a clever plot by the government to cause a pre-emptive rush, then they are playing with fire.
Unless its doomed never to pass. I really hope it does pass though.
The entire mentality of someone 'keeping prices up there' is impossible. Market forces are like natural laws; they can't be argued with. Only suspended for a while with a lot of hot air.
What worries me is that if they try they could drag this recession out for years. Better a short sharp shock. Much like pulling teeth. Than a slow agonizing draw.
And what's the point of preserving estate agent jobs etc..?. The aim is for the indifividual to produce something of value. Not simply to occupy his hours needlessly so he can draw a salary. Better to give him the cash and the day off, so he can spend his time spending it all. The housing market was never a viable market at this size anyway.
22. mark wadsworth said...
What D'Oh says and what STR2007 says.
As to the 1989 peak/crash, the threatened withdrawal of MIRAS may have helped the stampede but far more important was scrapping Domestic Rates (a property tax, hence not a million miles from Land Value Tax) and replacing it with a poll tax. The early 1970s house price bubble can also be traced back to the abolition of Schedule A taxation in the 1960s.
@ Chris, I'm not sure if that's your own opinion or iif you cut and pasted that, but the idea that BTLers will snap up properties at a price just above what FTBs can afford is nonsense. In the long run, typical rents and typical mortgage repayments are roughly in line. If people can afford to rent, then they can also afford to buy. If your theory is correct, then BTLers will forever be subsidising their tenants by overpaying for the properties, so the tenants can save up more for a deposit and sooner or later the equilibrium would be restored.
This whole idiocy in the MSM and Motley Fol of saying on the one hand a 3x limit would bring prices down (bad for existing owners) but on the other making things difficult for potential FTBs is two completely opposite arguments. We know full well that the former effect would outweight the latter so that in the long run, the next generation of home-buyers would be better off.
It's the same as the numpties who argue against Land Value Tax who say, often in the same rant, that it would make home ownership more expensive and also bring prices down. As ever, the latter effect would far outweigh the former. The most pathetic anti-LVT argument is that people wouldn't be able to afford to own their own homes and they'd have to sell out to a landlord. This is patent 80110CK5 - the LVT would never be more than a fraction of the full market rent for the whole property, so if you can afford to rent you can easily afford to pay the LVT.
23. crunchy said...
sold to rent and techie.........I think that this is all part and parcel of the soft landing plan. They know the game is up and prices have to come down.Governments and banks are playing a dangerous balancing act of bringing the market down in an orderly fashion without inducing PANIC.
They will fail. The DCB will not even happen in my opinion.
24. str 2007 said...
techieman
Yes The Reminicences arrived, haven't got past the introduction yet but looking forward to getting into it.
I'll take your advice on Trading Wizards and look those up aswell.
I know when we were previously having the conversation about 'Trading University' that another poster poss. Flashman or 51ck said they wouldn't entertain anything unless they had some sort of proof of trading to back up the system.
They do in actual fact have a PDF on their website which shows the 'system' turning about £18k into about £60k over I think a 2 1/2 year period.
Clearly not as profitable as training courses (my sceptical side coming out) and why didn't they run their example with £100k if it was going to gain 200 odd %. But apparently they do actually trade (no doubt as a side line to training).
Mark W
Whether it be LVT or anything else it amazes me we haven't heard more from the opposition parties with regard to alternatives/solutions etc.
Crunchy
Things are definately shifting at the moment in South Hampshire. If we see a DCB it will be in the numbers of sales rather than a rise in price IMO.
People who are buying at present are doing so off the back of very cheap mortgages. But as I mentioned earlier lenders are becoming more reluctant to lend Interest Only without a repayment vehicle. That suddenly sobers you up when you look at the repayment element of, for example a £200k mortgage - it's still alot of money to find every month.
25. crunchy said...
22. str 2007 Thanks for that.
Rising interest rates will slaughter anyone who is stupid enough to buy into this market at present and the government and banks know it.
We are hearing positive and negative news as the haphazard downward balancing act continues.
Can we afford to still be paying huge mortgages when our future tax burden will be MASSIVE?
26. techieman said...
STR2007 It was flashman who suggested they show a track record. The point is using the computer you can easily curve fit stuff to work. I might be being uncharitable there but as we both said breakout systems generally work when markets are trending and dont when they arent. They might have some filters so that a "band" of whipsaws are filtered out.
If you want evidence you should probably ask for a longer term performance (hypothetical).
27. M4nclad said...
Nevermind the goverment going insane. I would question the sanity of Motely Fool for publishing such drivel. It's looks to me like it's being written by someone from the "I bought in 06/07 club", who is crapping themselves at delcines in Houses and is posing as a FTB.
28. str 2007 said...
Crunchy
Yes in fact there is a very good arguement for 3x max and repayment vehicles in place with immediate effect to stop people 'over doing it' in this exceptionally low interest rate environment.
The low interest rates should be here to ease current pain, not create another problem in a couple of years time as per USA 2001 drop of rates creating a much bigger problem 4 years down the line as lending wasn't constrained.
29. crunchy said...
25. str 2007
Exactly, so it's back to HPC then!
30. techieman said...
STR2007 - sorry the book is "market wizards" not "trading wizards" read what people on Amazon think : http://www.amazon.com/Market-Wizards-Interviews-Top-Traders/dp/0887306101
31. crunchy said...
My friendly local EA just rang me. A 3bed terraced last year would have cost me £125,000 now the same in a better area and condition is on @ £95,000.
There has never been a better time to wait! Ten years ago the same would have cost £45,000. Getting a little closer to sensible.
A 30k drop within a year is OK by me.
32. mander said...
Consider a family all outgoings and see that 3.5 income is the maximum they will afford. Why would the Government want to make them pay double when they cannot afford more?
Government I think must control the fall of houses towards 3.5 salary as they cannot afford a Japan lost decade and to have the pound completely ridiculous undervalued because if the house prices fall in the rest of the world to adjust to income and in the UK will still be double then the pound will fall as investors will not trust UK.
Weak pound will push prices up, inflation will go out of hand and interest rates could reach 13-20% . It is true a lot of people have been fooled into this property bubble but that's business sometimes you lose sometimes you win.
33. str 2007 said...
techieman
I have the 1st 2 on order, apparently the 3rd books not so good.
crunchy
You're obviously looking yourself then if you've got agents chasing you ?
£95k for a 3 bed terraced, I don't know the area to which you refer, but a 3 bed terraced has just gone on the market in my road at £320k and that's just an eighties box not victorian or anything so think yourself very lucky if the areas good and you like it.
mander
Some interesting thoughts there with regard to our market getting artificially supported while others fall. Not sure I can get my head around the outcome of such a thing and if indeed would effect the currency, but interesting point none the less.
34. crunchy said...
30. str 2007
Looking not buying yet, just like the lively sound of squealing EA's from time to time. Yes, I like where I am. Used to live in Bromley, Kent. It is not worth the money.
£320k? Remember the bigger they are the harder they fall! If they are kicked in the right place.... just make sure you are not drunk when you do it.
35. landofconfusion said...
str 2007 @ 30
I was going to say the same thing. £95,000 for a three bed terraced? Where do you live crunchy? Isle of Sheppy?
Around here a 70's built 3 bed mid-terraced house with "easy main road access" and about 200m from a motorway junction (nice and noisy) will set you back circa. £165k.
36. crunchy said...
I ain't saying zip.
If this site is still around after the full collapse I will reveal my little bolt hole.
Crunchy the mole.