Thursday, Jun 17, 2010
Mortgage caps: 40pc could be denied a loan
Yahoo: Mortgage caps: 40pc could be denied a loan
As many as 40pc of home buyers could be shut out of the housing market if the Bank of England introduces mortgage caps.
Up to four in 10 people searching for mortgage prices online don't have a 25pc deposit, according to a leading price comparison website.
Posted by mark @ 09:33 AM (1832 views) Add Comment
16 Comments
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1. str 2007 said...
First off yeasterdays Telegraph article was a suggestion of 25% deposit.
IMO there is no way that will happen as we know the calculations here on how 25% reduces by a huge amount the borrowing capacity.
Example £20k deposit on 90% LTV allows house purchase of £200k (assuming salary multiples are ok)
Whereas £20k deposit on 75% LTV allows house purchase of £80k (I'm sure salary multiples would be ok)
The government would be blamed by home owners for crashing the market and by FTB for making them save too bid a deposit.
It's a non starter and won't happen IMO.
2. doom&gloom said...
40% of people don't have the money to buy something they want? They don't even have 25% of the cost saved up? Surely they should just be lent 100% the money to buy it anway. Madness.
3. str 2007 said...
Hope it does happan though ;-)
(before I buy)
4. mark said...
I personally think the banks have run out of money again and the government is probably looking at ways to reduce demand.
5. str 2007 said...
do'h - happen.
6. str 2007 said...
mark
I was mountain biking with a banker last night. Very difficult presently to raise corporate finance at present.
This doesn't seem to be the case with mortgages.
Apparently banks are starting to recruit Account Directors for Corporate Finance again (sales reps with money as a product to you and I) which to me indicates they are expecting to be punting more corporate funds soon.
So I'm not sure they have run out of money. And if they do on an international basis I reckon they'll be another international agreement to print more of the stuff.
What amazes me is how it takes a new government to do the obvious thing of splitting up banks so peoples savings (for any amount) can be ring fenced and made secure.
7. mark wadsworth said...
Re what Mark says at 4 and STR at 7, let's keep a close eye on whether the Lib-Cons actually ask the banks to repay that £300 billion of taxpayer funded or backed mortgage bail out loan (repayments to start next April, I believe).
If they were to do that, it would mean absolutely no new lending (neither gross nor net) for about four years (banks collect well over £100 billion a year in gross repayments and redemptions, a few pence of which gets paid as interest to 'savers'). I don't know what impact that would have on house prices, but it'd be significant.
Your guess is as good as mine whether the Lib-Cons will allow the market to crash ASAP and blame it on Labour (which would be fair do's IMHO) or whether the Tories' Home-Owner-Ist instincts will override this (and they'll 'forget' to call in that bail out loan). If they are going to let them crash, then they'd better do it soon, if they wait for more than six or nine months then it will be seen as a Lib-Con 'failure' rather than a Labour 'failure'.
The third option is neither crash nor stable prices, but a gradual decline over a decade or more (like Japan) which is the worst of both worlds.
8. simon68 said...
I agree with doom and gloom all banks should offer 100% mortgage loan to house purchasers, led up to 2nd wave of financial tsunami and UK government may print another trillion pounds to bail out banks or impose poll tax to fill the black hole. By then, Zimbabwe type hyperinflation isn’t a dream!
9. Rental John said...
Get ready for capitulation phase! Could this and similar be the final stage before prices finally fall to below trend as was typical on past busts?
10. mark said...
I don't think the BOE or the government can afford to "print any more money" especially with a credit rating downgrade on the warpath
11. wdbeast said...
I think that the government has now decided that it is better to get on with HPC and all the problems that brings as they know sooner or later it is inevitable.
The minimum 25% deposit is to stop as many defaults from new mortgages as possible, although there will obviously be many if/when prices drop by a minimum of 25% over the next 2-3 years.
The messages about interest rate hikes and the end of the stimulus package support this view.
The clear message is that the government want it to happen (HPC) so they can get into recovery mode within their 5 year term.
This is it guys, a government sponsored HPC.
12. mark said...
wdbeast lets hope you are correct
13. simon68 said...
To: wdbeast
Yes, it is true. The last who hops on the wagon picking up red hot properties stock will get hurt most.
14. mark wadsworth said...
Wdbeast, I hope you are correct. My only vaguely novel thought of the day (which was so good I shall repeat it) is that if the Lib-Cons want to blame the ensuing HPC on Labour, they'd better get their skates on. I'm not sure what their 'window of opportunity' is, but if they leave it more than six months for a HPC then all bets are off.
15. fjcruiser said...
Mortgage caps would certainly mean a drop in property prices.Great idea. In fact it happened a few months after the bubble burst just before the introduction of QE. Most mortgages had been withdrawn between June 2008 and Feb 2009 and lending was restricted to good credits. Property prices went down about 20% on average because of restricted lending.As soon as QE was introduced the cycle reverted unfortunately.
16. mark wadsworth said...
fjcruiser, that would be a genius summary, only it wasn't the QE that did it (in a roundabout way, QE is actually the government borrowing from commercial banks) it was the £300 billion bail out loan I mentioned above.