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Ministers Consider Scheme To Guarantee Mortgages

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http://www.guardian.co.uk/business/2009/ju...ime-housebuyers

Basically, the problem that holds everything and everyone up is that FTB are not in possession of 25% deposits, so, something has to be done.

The idea is being pushed by specialist insurers who might sell the necessary insurance to the banks. Genworth Financial, a US-based company, is among those to have submitted proposals. It is suggesting that the state would act as direct guarantor initially and that private sector players would step in to allow the government to "reduce its role from being a direct insurer to a guarantor of the private mortgage insurance providers".

One day, their prince will come.

8():

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That would certainly boost the market, it it ever sees the light of day.

Only if FTBs were stupid enough to take up this offer. Unless subsidised the cost of the insurnace will be very high as it will reflect the credit risk.

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Only if FTBs were stupid enough to take up this offer. Unless subsidised the cost of the insurnace will be very high as it will reflect the credit risk.

Certainly price will be the key. But if it can be offered at an acceptable premium, FTB's will jump at the opportunity.

Are they stupid? Maybe, maybe not.

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Only if FTBs were stupid enough to take up this offer. Unless subsidised the cost of the insurnace will be very high as it will reflect the credit risk.

Madness Squared.

If the taxpayer subsidises mortgage insurance, then banks will be willing to lend more money to people at crazy low rates, as they know that they will be repaid.

That means another house price boom, which in turn pushes people to take crazier and crazier risks with their finances. All the insurance does is push up risk in the system, and that risk ball rolls down the hill until it crashes.

Then the taxpayer has to bail everything out again.

Presumably the logic of this is to allow banks to mark their loans to market, given that a lot of those loans have to be marked fradulently at the moment to allow the banks to report a positive balance sheet.

Down the line though, the failure will be all the greater.

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Guest KingCharles1st

I actually don't see a problem, as long as FTB properties are valued by an official HPC valuer- (I would, and I'm sure Eric would oblige) and therefore I see no problem with a currently 120K one bed shoebox being correctly valued at 25-30K, and so on...

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http://www.guardian.co.uk/business/2009/ju...ime-housebuyers

Basically, the problem that holds everything and everyone up is that FTB are not in possession of 25% deposits, so, something has to be done.

One day, their prince will come.

8():

This makes a lot of sense when the market is functioning at a sustainable level (like in Canada) but seems unworkable when FTB houses are so expensive. I think it would be unworkable as the cost of the insurance would be prohibitive.

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This makes a lot of sense when the market is functioning at a sustainable level (like in Canada) but seems unworkable when FTB houses are so expensive. I think it would be unworkable as the cost of the insurance would be prohibitive.

There are a few threads on this topic .........

My two cents worth on the Canadian system from Charterhouse's thread .....

As long as the insurance is coupled with controls over debt ratios, principal repayment and the amortisation period of the loans, I think that it is workable.

I am quite a conservative type. I have to say that I quite like the Canadian mortgage market and see it as one of the few examples of a hybrid public / private system that actually works.

- There are no mortgages with an LTV higher then 95%

- LTVs between 95% and 80% are done via a government sponsored insurance scheme (the CMHC)

- LTVs of 80% and lower are done though the banking market

- Mortagage costs (principal and interest) cannot be more than 30% of income

- Total debt service costs cannot be greater than 42% of income

- Maximum loan amortisation is 30 years (the government put a stop to the trend of 35 and 40 years ams)

The advantages of the system are as follows :

- Super high ratios have been avoided

- The insuance scheme means that high ratio mortgages become homogenous. This protects investors and makes it very easy to securitise high ratio mortgages as they are effectively government guaranteed

- The limits on both mortgage and total debt service ratios to income prevent "insane" borrowing

- The proprtion of fixed rate mortgages for longer terms is much higher there than here. This means that the debt service ratios are quite stable as costs remain fixed when short term interest rates fluctuate.

- The system is based on the ability to pay rather than house prices not falling

- Mortages all include principal repayment. This is less risky to consumers and avoids all of the market risks in things like interest only mortgages and endowment mortages

- The small number of mortgage products mean that their market is much more competitive and transparent than ours

Personally, I think that this is a pretty good model.

http://www.cmhc.ca/en

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whats the point?

business loans guarantee scheme is fully operational but useless, as the banks have that as a LAST RESORT.

so FTB loan guarantees will be the same, a last resort....still means that the whole process needs to be gone through, the house sold, the cash returned, the FTB backon the street, THEN, the guarantee kicks in.

and a Risky loan is a Risky loan afterall.

Edited by Bloo Loo

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whats the point?

business loans guarantee scheme is fully operational but useless, as the banks have that as a LAST RESORT.

so FTB loan guarantees will be the same, a last resort....still means that the whole process needs to be gone through, the house sold, the cash returned, the FTB backon the street, THEN, the guarantee kicks in.

and a Risky loan is a Risky loan afterall.

In exchange for being the lender of last resort in the riskier end of the market, the government has imposed restrictions on both mortgage service costs and total debt service costs in addition to enforcing principal repayment on all mortgages.

Improving access to funding in exchange for wringing out some of the causes of speculation seems like a reasonable compromise to me.

Under these rules, someone with an income of 25k would be allowed to spend a maximum of 30% of their income on a 30 year mortgage. At a 6% rate for a 5 year mortgage (including the insurance premium), this would allow someone to buy a house for around 109k with a deposit of around 6k. In addition to 7.5k a year, the maximum allowable cost to service all other debt would be 3k (cars, cards, etc).

This structure takes the level of interest rates into account rather than using a single loan to income multiple with rates at 1% or 15% which isn't logical.

It is about prevention rather than cure.

Edited by LuckyOne

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In exchange for being the lender of last resort in the riskier end of the market, the government has imposed restrictions on both mortgage service costs and total debt service costs in addition to enforcing principal repayment on all mortgages.

Improving access to funding in exchange for wringing out some of the causes of speculation seems like a reasonable compromise to me.

Under these rules, someone with an income of 25k would be allowed to spend a maximum of 30% of their income on a 30 year mortgage. At a 6% rate for a 5 year mortgage (including the insurance premium), this would allow someone to buy a house for around 109k with a deposit of around 6k. In addition to 7.5k a year, the maximum allowable cost to service all other debt would be 3k (cars, cards, etc).

This structure takes the level of interest rates into account rather than using a single loan to income multiple with rates at 1% or 15% which isn't logical.

It is about prevention rather than cure.

yes, but why...the market will see that FTBs can buy by FALLING PRICES.

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yes, but why...the market will see that FTBs can buy by FALLING PRICES.

The current model is broken. If this is a better model than the current model, the only question becomes "when?".

I agree that it makes more sense to implement a change like this when houses are closer to their fair value than they are now.

The constraints on mortgage and total debt service costs will actually help push prices lower. The debt service rules that Canada has in place would help push prices lower here.

The insurance scheme without the affordability constraints would be madness.

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The current model is broken. If this is a better model than the current model, the only question becomes "when?".

I agree that it makes more sense to implement a change like this when houses are closer to their fair value than they are now.

The constraints on mortgage and total debt service costs will actually help push prices lower. The debt service rules that Canada has in place would help push prices lower here.

The insurance scheme without the affordability constraints would be madness.

I beleive "affordability" is what got us in the mess we are in.

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I beleive "affordability" is what got us in the mess we are in.

What people can truly afford over the long run and the short run might be two different things. I suspect that we will find out in the next 3 to 5 years. The Canadian model is about trying to constrain people's purchases to what they can afford over the long run rather than the short run.

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If they had done this the first time round with existing first time buyers in trouble, and possibly transfering the loan including risk and interest to a government fund, instead of paying for bonuses for bankers I might be impressed. Save a few homes, lose some money, but undercut the cost through interest from the ones that survive. But no. They had to nationalise Northern Rock and then turn them into complete bastards that created even more homelessness to try and save some money. All they are doing is assuring the banks further profit by guaranteeing the riskiest end of the market. Its another giveaway to corporate Britain. It has nothing to do with the individuals or their loans. They have no intention of claiming the benefits of the risk. Only the risk, at taxpayers expense again. SOD EM.

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Who underwrites the insurance co. risk?

Goldman sachs of course.

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They will do literally anything to keep house prices unaffordable. The question we must ask is: why?

Because much of current government policy is reliant on property values rising.

e.g. there is a current shortfall against the Olympic budget of £1bn as the land that will be sold post-Olympics for housing development is not valued at the amount the government hoped.

The government is reliant on people withdrawing equity from their properties to subsidise their old-age.

Or to be more blunt, typical Labour policies of paying for things by borrowing rather than saving.

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All this messing about...

JUST BUILD COUNCIL HOUSES!

Cheaper, less messy. End of story

After reading several posts on the FTB subject I am eventually going to react.

I am an aspiring first time buyer, looking at buying Q2 2010, will it be too soon regarding to buy because we are not going to be at the bottom, well perhaps but you know what I waiting long enough.

We will have 10% deposit, buy a little property less than 3x our salaries, pay less than what we pay in rent and will do our first house as we want it to be.

It is all good and well to say that FTB are dumb but what you have to remember that most FTB are not in the same situation that most of you on this forum are (I am not pointing at anyone). We did not go to rented accomodation by choice, because we knew that property price could not continue to go up and the bubble was going to implode, no we are renting because we have no other choice and that is a huge difference.

Murpaul, I don't see your point with the council house reaction. How is it going to sort most FTB problem. We are working, we are "quite" young (that is relative of course), we are saving (or trying to save at least), and we don't want to be in council house, we want a nice little house where we feel enough at home so we can paint the room, redo the garden, put a conservatory if we wish....

I am going to buy a house to live in it, if at the same time I make a bit of money out of it, good, do I think that I will make money out of it in the next few years, no. And you know what : it does not matter!

So if the government/bank/institution want to help me to do that and that there is no catch, overcharge... well I say why not.

Maya

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The idea is being pushed by specialist insurers who might sell the necessary insurance to the banks. Genworth Financial, a US-based company, is among those to have submitted proposals. It is suggesting that the state would act as direct guarantor initially and that private sector players would step in to allow the government to "reduce its role from being a direct insurer to a guarantor of the private mortgage insurance providers". "We urge the government to consider developing a partnership with mortgage insurance providers in order to prudently and efficiently provide a lasting and sustainable solution to prudently and efficiently provide a lasting and sustainable solution for the wholesale mortgage market," Genworth said.

Surprise, surprise. If, in the last resort, the state bears the risk, then it should take the entire profit. The state is more capable of underwriting risk than any private provider of capital, so why have a middleman skimming profits? Fair-weather private insurance is no insurance at all.

So if the government/bank/institution want to help me to do that and that there is no catch, overcharge... well I say why not.

They don't want to help you, they want to help themselves to your future labour.

The purpose of this scheme if implemented in the UK would be to provide more credit for house purchases. More credit means bigger mortgages and higher prices (or rather, prices falling less than they otherwise would). Wouldn't you prefer a lower mortgage and a cheaper house? The fact that you might get a bigger mortgage won't affect the house you end up being able to afford, because everybody in a similar situation to you will also be able to get a bigger mortgage.

Look at who loses, and who wins. FTBs get bigger debts; banks get the valuations they need to fix their balance sheets; the government gets off the hook on its asset insurance and bank holdings. [edit: and as noted above, the specialist insurers get to skim from the middle].

Edited by huw

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