Banks Force Up Average Deposits To 50%

[eric pebble]

Well I do know a lass that got 130% in late 2007. The additional money was to clear CC debts.

Spoke to her recently, she's in a whole trapped world of hurt. I did tell at the time, but no listen.

Incredible.

[porca misèria]

Move along, nothing to see. Market returned to normal.

Lots of remortgages to people with equity. Relatively lots of cash-rich buyers - like the HPC crowd (remember someone did a poll of how much savings we have, and over 40% said they had over £100k). Quite apart from movers with equity.

And there's the other HPC thread: record debt amongst the elderly. Deposits coming from Bank of Mum&Dad. That means two low-LTV mortgages for one house purchase, 'cos in effect a mortgage is split over two houses.

[Pindar]

http://www.timesonline.co.uk/tol/money/pro...icle6788443.ece

From The Sunday Times

August 9, 2009

Banks force up mortgage deposits to 50%

Lenders’ are supposedly lending more than ever, but the average loan relative to value is still high, preventing a market rally

High-street banks are squeezing borrowers to such an extent that the average deposit on new loans can now be more than 50%, in the latest threat to the housing market recovery.

HSBC, which doubled its lending in the first half of the year, revealed in its results last week that its average loan relative to the value of the property fell to 49.9% in 2009 — down 9% compared with 2008.

This means the average deposit — or equity — supplied was more than 50%, or £100,000 on the typical £200,000 property.

Barclays’ average loan relative to value (LTV) fell to 46% in the first six months — 5% lower than the same period last year.

Lenders generally advertise their best deals as requiring a 40% deposit or equity but the results suggest that may not be enough.

The figures come in a week when the banks claimed they were lending billions to households and businesses to kick-start the economy. However, the small print of their accounts reveals a £26 billion gap between the funds they say they lent out and the reality. While Barclays said it lent £8.5 billion to households in the first half, net new mortgage lending (after redemptions) was just £2.2 billion. The rest was lending through its Barclaycard arm.

Lloyds said it lent £18 billion to borrowers in the first half but the net figure was just £1 billion, while Royal Bank of Scotland boasted of £7.2 billion of lending when in fact the net figure was just £4.1 billion.

HSBC said the main reason for the drop in the amount it will lend was fewer applications from borrowers with small deposits, but Sunday Times readers with enough equity to get the best deals have complained of being turned away.

First-time buyers James Newbound and his girlfriend, Alex, of London, both 25, had a combined income of £95,000 and a deposit of £180,000 — or 45% for a property worth £400,000 — made up of savings and money from their families. They applied for a two-year fix from HSBC — which says it requires a 40% deposit — but were refused.

Adrian Bell, an Anglican clergyman from Fakenham, Norfolk, applied to HSBC for a mortgage with a 40% deposit on a three-bedroom home in Norwich, where he plans to retire, valued at £157,000. He was turned down by both HSBC and Abbey.

He said: “We were accepted on the Friday for a mortgage only to be told on the Monday that the offer had been withdrawn. No reason was given, even though we were classed as a customer . . . with a perfect financial track record.

“Having been with HSBC for over 25 years I was amazed that we were refused with a £62,000 deposit. It took almost a year to obtain our retirement home, which we could well have lost by the delay.â€

The moves will worry thousands coming up to remortgage who think that, with decent equity, they will have access to the best deals. They are being urged to pay off as much of their debt as possible.

The Royal Institution of Chartered Surveyors (Rics), which last week said it thought house prices would end the year higher, is nevertheless worried that mortgage finance could derail the recovery.

Analysts say banks are pricing mortgages too high, deterring consumers from applying. Seema Shah of Capital Economics, the consultancy, said: “The extra cost of borrowing with a 10% deposit relative to 25% is two percentage points compared with just 0.07 points a year ago.â€

Banks consider mortgage lending a high risk business, given that house prices remain far above historic norms. Who'd have thought it?!

Gordon and Ali had better come up with a few new tricks if they want to win the next election. It looks like their dream of perpetual HPI is nothing more than a huge debt-pie in the sky. Gooooooooood.

[eric pebble]

Gordon and Ali had better come up with a few new tricks if they want to win the next election. It looks like their dream of perpetual HPI is nothing more than a huge debt-pie in the sky. Gooooooooood.

A giant HUGE Pyramid/Ponzi SCAM no less ---- Fuelled by

PREDATORY LENDING

&

LIAR LOANS

[Laura]

It was a blended rate.

I do that in the kitchen.

It makes some ingredients go fluffy & light, thxs to the air introduced.

Once baked, the final product is something else.

I was doing this years before a Mrs. Applegarth made a terrible mistake at the birth of a son.

[IntoTheStorm]

http://www.timesonline.co.uk/tol/money/pro...icle6788443.ece

First-time buyers James Newbound and his girlfriend, Alex, of London, both 25, had a combined income of £95,000 and a deposit of £180,000 — or 45% for a property worth £400,000 — made up of savings and money from their families. They applied for a two-year fix from HSBC — which says it requires a 40% deposit — but were refused.

I love the example....:-)

£180k deposit by 25. Fantastic! , given probably only 3-4 years out of University (I'm presuming graduates by the solid £95k combined income), and the savings habits of most 22-25 year olds, I somehow doubt even 1/10th of the £180k deposit has come from 'savings'.... Clearly the bank saw right through that.

£400k property at 25 anyway, what is the rush with some people at the moment?

[HPC001]

I love the example....:-)

£180k deposit by 25. Fantastic! , given probably only 3-4 years out of University (I'm presuming graduates by the solid £95k combined income), and the savings habits of most 22-25 year olds, I somehow doubt even 1/10th of the £180k deposit has come from 'savings'.... Clearly the bank saw right through that.

£400k property at 25 anyway, what is the rush with some people at the moment?

Family, inheritances, good connections....not impossible to have that much while relatively young.

Edited August 9, 2009 by HPC001

[Guest theboltonfury]

Is this article not confusing new loans with the overall make-up of the bank's mortgage book?

It talks as if preventing a market rally is a very bad thing.

[IntoTheStorm]

Family, inheritances, good connections....not impossible to have that much while relatively young.

Agree, my point is it is likely 90% + family provided 'savings' one way or the other..

It is not savings of 'earned' income, ie. that £500 or £1000 (or more) each month someone might save out of the difference between their earnings and monthly spending.

Its this 2nd type of 'savings' that the banks traditionally used to like to see to prove you were capable of accumulating money and servicing a loan. This is why they ask for 6 months of bank stmts and how deposit was accumulated if you don't hold regular current account with them

Having £180k given to you doesn't really prove squat to the banks about your ability to service another £220k if debt, if each month you just blow all of your regular income on a middle class london lifestyle, going out and tat.

I guess a bit of a sore point for me. Like many others here I haven't experienced huge amounts of gifted money for a deposit to buy a house (and morally would not ask for it). At 33 am considerably better off than my parents, having had to accumulate wealth on my own, so would not in a million years consider hitting them up to supplement a deposit.

I hate the whole 'bank of mum and dad' c##p that is underwriting the FTB market at present.

Admittedly i might be misjudging the people in the example. Maybe they did save £180k on their own by 25. Somehow i doubt it. My experience (graduated at 21), was i didn't really start to accumulate any sort of serious money until a few years out of uni (Starting from maybe 25 onward). Until then you're usually on a rubbish grad salary and enjoying your money..

[HPC001]

Agree, my point is it is likely 90% + family provided 'savings' one way or the other..

It is not savings of 'earned' income, ie. that £500 or £1000 (or more) each month someone might save out of the difference between their earnings and monthly spending.

Its this 2nd type of 'savings' that the banks traditionally used to like to see to prove you were capable of accumulating money and servicing a loan. This is why they ask for 6 months of bank stmts and how deposit was accumulated if you don't hold regular current account with them

Having £180k given to you doesn't really prove squat to the banks about your ability to service another £220k if debt, if each month you just blow all of your regular income on a middle class london lifestyle, going out and tat.

I guess a bit of a sore point for me. Like many others here I haven't experienced huge amounts of gifted money for a deposit to buy a house (and morally would not ask for it). At 33 am considerably better off than my parents, having had to accumulate wealth on my own, so would not in a million years consider hitting them up to supplement a deposit.

I hate the whole 'bank of mum and dad' c##p that is underwriting the FTB market at present.

Admittedly i might be misjudging the people in the example. Maybe they did save £180k on their own by 25. Somehow i doubt it. My experience (graduated at 21), was i didn't really start to accumulate any sort of serious money until a few years out of uni (Starting from maybe 25 onward). Until then you're usually on a rubbish grad salary and enjoying your money..

I don't know. Maybe they turned a profit on a side business for a number of years. Who knows. As for "the bank of mum and dad" the assumption that lots of people have access to this is what pervades the govt welfare and student finance systems. Then somehow you magically stop receiving it at 25 or when you're married\have a child. None of this makes any sense whatsoever.

[Guest Parry aka GOD]

I love the example....:-)

£180k deposit by 25. Fantastic! , given probably only 3-4 years out of University (I'm presuming graduates by the solid £95k combined income), and the savings habits of most 22-25 year olds, I somehow doubt even 1/10th of the £180k deposit has come from 'savings'.... Clearly the bank saw right through that.

£400k property at 25 anyway, what is the rush with some people at the moment?

Somebody's Gran died I reckon.

[Hip to be bear]

I do that in the kitchen.

It makes some ingredients go fluffy & light, thxs to the air introduced.

Once baked, the final product is something else.

I was doing this years before a Mrs. Applegarth made a terrible mistake at the birth of a son.

Are you suggesting that Mr Applegarth Snr should have (to use a banking pun) made a well timed withdrawl and deposited his wad elsewhere?

[IntoTheStorm]

Somebody's Gran died I reckon.

I guess i can't fight the inherited/family money:-)

Their buyer profile, income, target house price range in the london market, are only a little ahead of what my own would be.

The frustration is if there wasn't 25yos in the market with £180k of (what I'm guessing is mostly) family money that is prepared to pay over the odds, then that £400k property referred to would likely fall to something more sensible like £250-£300k where some of us other mugs might consider buying it...

End of rant..

[Guest Parry aka GOD]

I guess i can't fight the inherited/family money:-)

Their buyer profile, income, target house price range in the london market, are only a little ahead of what my own would be.

The frustration is if there wasn't 25yos in the market with £180k of (what I'm guessing is mostly) family money that is prepared to pay over the odds, then that £400k property referred to would likely fall to something more sensible like £250-£300k where some of us other mugs might consider buying it...

End of rant..

Chill out, don't worry about it. It's just a house with all the cr@p that goes with owning them.

Why London? I lived there a few times and truely hated the place. Much better parts of the UK for a lot, lot less out there.

[spivT]

with a deposit of 180k that london pair have got to be hpc'ers....

oh wait, undefined amount of that pot came from bank of mum and dad, and what's that you say ? people who don't post on here have savings aswell ? therefore could be they aren't hpcers. Have we really become that unimaginative that we can think of nothing better to do with 180k at 25 ?

oh well, i guess broon won't be happy until all of that cash is tied up in property and what they have left over after mortgage repayments is spent on consumer good ands holidays in the UK.

And capital appreciation will return like a white knight to allow them to MEW at some indeterminate point in the future to tie up more cash in more property and to 'consume' more stuff that they've got no place for in their london shitbox,

It's all in the big red book.

[spivT]

I hate the whole 'bank of mum and dad' c##p that is underwriting the FTB market at present.

+1

Also, hate all these f***** 25-30 year olds acting like grownups and getting into relationships and buying houses together with dual incomes and dual bank of mum and dad accounts. Especially when one or both work in some pigging non-job and don't know one end of a screwdriver from the other. Relying on Dad A or Dad B to bring their shitboxes up to international

bright young thing standards.

ok, rant over...

[interestrateripoff]

The rationing gets even tougher. I said LTV would be used to ration loans, when you factor in what this means people having to save and not spend FTB are going to disappear from the market, volumes are going to be low for a long time.

Banks can make all the claims they like when they have the limiting factor of LTV.

Bad news for the taxman on so many levels.

from here:

If your on £17000 a year 3.5x salary gives you a maximum amount of £59500

If your on£16000 a year 3.5x salary gives you a maximum amount of £56000

If your on £15000 a year 3.5x salary gives you a maximum amount of £52500

If your on £13000 a year 3.5x salary gives you a maximum amount of £45500

So if most households are only going to have 1 person working these are the maximum loan amounts banks may be willing to lend to individuals.

It may also be fair to say 100% won't be returning anytime soon which means buyers need a deposit, for FTB this will mean savings. So if you where on £13k a year and 10% deposit is the minimum requirement you would need savings of around £5050 to give you a maximum of £50550 to spend on a house.

Now the larger the LTV ratio banks depend the lower prices will fall, I personally feel someone who is renting is going to struggle to save £5k, especially if they are on £13k a year. They won't have that much spare cash. I would estimate it will take them 3-5 years to save the money. Not good for a quick fix to the property market.

You have to ask yourself how much can someone on £13k save to get a deposit, yes they may be able technically get £45k mortgage but would they be able to save the 10%. If no then house prices have a long way to fall so that they become affordable for the FTB.

Either wages rise or prices drop. So if typical house was £100,000 and you have a 60% fall in prices that would give a house of £40000. Therefore you would need a deposit of £4000 if banks want 10%.

So is this affordable? Do you think FTB earning £13k a year, renting, maybe a small child etc... is going to be able to save £4000?

Are FTB buyers important to the housing market, if the answer is yes you have a bit of a problem.

[Guest Parry aka GOD]

+1

Also, hate all these f***** 25-30 year olds acting like grownups and getting into relationships and buying houses together with dual incomes and dual bank of mum and dad accounts. Especially when one or both work in some pigging non-job and don't know one end of a screwdriver from the other. Relying on Dad A or Dad B to bring their shitboxes up to international

bright young thing standards.

ok, rant over...

Hate to say it, but my kids' only 5 and I've put away enough to cover University and already bought her a house.

She actually owns it already, the freehold, legal here.

But +1, I hate these silly terms too.

[Frank Hovis]

I particularly like the intelligent comments at the foot of the article

[Charterhouse]

Who the hell earns 13k a year?

[Laughing Gnome]

Do some analysis though.

Let's say we assume that banks can get themselves comfortable with the fact that house prices will not fall another 50%, and they can get themselves comfortable with lending at say 5% at 50% LTV.

In fact, they are charging say 6%.

The interest rate that they are charging on higher LTVs is therefore as follows, i.e. the borrowing rate on the additional lending beyond 50% LTV:-

60.0% LTV 15.00%

70.0% LTV 10.00%

80.0% LTV 8.33%

90.0% LTV 7.50%

100.0% LTV 7.00%

It's pretty clear that (assuming these assumptions are reasonable, which they seem to be...) lending at a 70% LTV or better is pretty damn sensible and safe. 80% still looks okay, actually, while 90% and 100% are a bit skinny marginwise.

I think people have a pretty good point saying that the banks are taking the p1ss atm.

WTF?

[kilroy]

Who the hell earns 13k a year?

Health care assistants?

[HPC001]

Who the hell earns 13k a year?

Most jobs advertised seem to offer about minimum wage, funnily enough. Which is about £11,500 starting from this October..

Edited August 9, 2009 by HPC001

[Guest theboltonfury]

Who the hell earns 13k a year?

Loads of people do.

It's more than the minimum wage.

[okaycuckoo]

I suspect this will start to cause increased demand in the rental market (anyone staying with parents who needs their own place) thus pushing the rents back up to pre-2008 levels.. Great.

I wonder. We've had the Reuters report on here about lenders gearing up to offload repo'd BTLs before the end of the year. I await that one with interest, assuming that professional LLs will dip in for bargains in the apartment market.