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Cheaper Mortgages Still Not Drawing The Crowds

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Mortgage rates have fallen, criteria have loosened, and yet borrowers remain wary of the housing market, says Moneyfacts.co.uk.Borrowers are still not being tempted, the financial information website has found, by the lower mortgage rates and easier lending criteria which should be making the struggling market look ripe for a resurgence. While some industry experts have criticised mortgage lenders for not doing enough to pass on more savings to borrowers as the base rate fell to a record low of 0.5 per cent last March, customers have nonetheless benefitted from some rate cuts. According to market analysis from Moneyfacts, the average two yearfixed rate mortgage is currently at the lowest level since the base rate fell to its current depths, falling from 5.21 per cent to 4.61 per cent.  Five and three year fixed rate have also fallen, the research shows, from 5.61 to 5.30 per cent, and from 6.24 to 5.74 per cent. Consequently, monthly repayments on two, three and five year fixes have fallen by £52, £28, and £46 respectively, based on a £150,000 repayment mortgage. Some borrowers have seen their monthly payments fall, and have used the extra to pay off their mortgage more quickly ? a "wise move," says Moneyfacts. But many borrowers are resisting the lure of lower mortgage rates and easier lending conditions such as higher loan to values.

Darren Cook, spokesperson for Moneyfacts.co.uk, tries to make sense of what is keeping borrowers away from what "should be a perfect platform for a resurgent mortgage market.""Lenders are competing for a reducing amount of business and there is little incentive for borrowers to remortgage to another mortgage deal," he explained. "Mortgage revert rates as low as 2.50% have meant borrowers should have taken the wise decision to overpay their mortgage."However, borrowers who have benefitted from falling interest rates and monthly repayments should prepare themselves for when interest rates inevitably start to rise, Mr Cook warns. "A spiralling inflation rate, which could be aggravated by the predicted rise in VAT, can only point towards a Bank base rate increase sooner rather than later," he predicts.

Oh dear with high RPI and CPI but low interest rates at the near term (as standard of living adjusts) , demand is still weak. As the article suggests banks are competing for the little business out there presumably slashing their margins. I think the Nationwide results highlighted these problems for the lenders. As for the second home owners and BTL's who 'saved for their pensions' they may struggle to find the buyers to sell who have managed to accumulate enough capital to pay wanted prices. Have Wilsons offloaded their lot yet?

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Interesting... The standard line from the property experts (I haven't put the inverted commas in, but we take the irony for granted now) is that all would be well in the world of property if only the banks would start lending again. Just how wrong can one industry be without becoming a new comedy genre?

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The "repayment mortgage for 150K" example in the article infers the following:

£200K property offered at 75% ltv, deposit required was 50K - Salary required single 38K, joint 60K

£187.5K property offered at 80% ltv, deposit required was 37.5K - Salary required single 38K, joint 60K

£176.5K property offered at 85% ltv, deposit required was 26.5K - Salary required single 38K, joint 60K

£166.7K property offered at 90% ltv, deposit required was 16.7K - Salary required single 38K, joint 60K

It's not that the sheeple are choosing not to take up these offers, it's that the sheeple only know how to borrow 100% ltv interest only, and the idea that they can get together 16K in 1 or 2 year to get the bottom level of these deals is a fallacy. IMO the bottom level of these deals is not actually reflected in the article, as the current rates for 90% ltv are much more expensive than suggested. The basic premise of the article is that everyone has a 20/25% deposit and is still not signing up to these great deals - which is clearly wrong, neither a volume of people holding such deposits exists and they are not signing through choice, it because they don't qualify in the numbers needed to make an impact on a measurement like this. There is no market. It is dead.

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From this thread

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.

Without 100% or 125% mortgages there is going to be a significant correction in my view.

My thoughts on this from another thread awhile back.

Once banks start wanting a large deposit house prices are only going to head one way and it won't be up.

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