Boe To Cap Mortgages Says Telegraph

[the flying pig]

But what mechanism is going to reduce that property to 175K if it is capable of providing a gross yield of 6% at 245K?

er, the fact that the overall demand for it has gone down?

it's fallacious to try and characterise the changes in yield resulting from price changes as some kind of an automatic price 'rebounding' mechanism. if it was then the huge price increases in the early to mid part of the previous decade would surely have been dampened by BTL investors, seeing their yields fall, piling out [as we know, the opposite happened].

Edited June 16, 2010 by the flying pig

[Si1]

er, the fact that the overall demand for it has gone down?

it's fallacious to try and characterise the changes in yield resulting from price changes as some kind of an automatic price 'rebounding' mechanism. if it was then the huge price increases in the early to mid part of the previous decade would surely have been dampened by BTL investors, seeing their yields fall, piling out [as we know, the opposite happened].

not only that, but a 6% yield is terrible - try 10%+ for anything worthwhile

[Bumble Dumb]

er, the fact that the overall demand for it has gone down?

it's fallacious to try and characterise the changes in yield resulting from price changes as some kind of an automatic price 'rebounding' mechanism. if it was then the huge price increases in the early to mid part of the previous decade would surely have been dampened by BTL investors, seeing their yields fall, piling out [as we know, the opposite happened].

I do not doubt that the price would fall, but as it does, the potential rental yield will rise. This will make the property an attractive investment long before it reaches the levels of being affordable to someone on an ordinary wage.

It seems to me that BTL investors in the early to mid part of the previous decade had their eyes more on the capital gains increases than the rental yield.

[dances with sheeple]

I'm in the camp that thinks they'll do anything to keep prices up so am still worried that it means what I suggested above i.e. max 90% LTV but with a governemnt guarantee for the bit between 75% and 90%

No need for them to do this now after an election? The boy/girl slaving away at the checkout who gets to buy a reasonably priced flat in five years will be voting for Dave and the boys for sure?

[dances with sheeple]

It's more of a problem with the people than the bankers, people are losing their jobs, on reduced hours or worried about the future, carrying more taxes, and housing is just as unaffordable as ever, it's one of the bankers triumphs. Forget about interest rates, people couldn't afford the capital repayment in the boom times (hence interest only) let alone during a bust.

So the only option for the bankers, if they want to make loans, is to crash the market?

[the flying pig]

...It seems to me that BTL investors in the early to mid part of the previous decade had their eyes more on the capital gains increases than the rental yield.

and suddenly now they're all yield pigs, i suppose?

I do not doubt that the price would fall, but as it does, the potential rental yield will rise. This will make the property an attractive investment long before it reaches the levels of being affordable to someone on an ordinary wage...

interesting theory but pure assertion and not factoring in, for example, any impact of CGT changes...

[dances with sheeple]

I do not doubt that the price would fall, but as it does, the potential rental yield will rise. This will make the property an attractive investment long before it reaches the levels of being affordable to someone on an ordinary wage.

It seems to me that BTL investors in the early to mid part of the previous decade had their eyes more on the capital gains increases than the rental yield.

So you see success stories like the Wilson`s only being copied by the 'few' now, rather than any c*unt with a white van

[non frog]

I do not doubt that the price would fall, but as it does, the potential rental yield will rise. This will make the property an attractive investment long before it reaches the levels of being affordable to someone on an ordinary wage.

It seems to me that BTL investors in the early to mid part of the previous decade had their eyes more on the capital gains increases than the rental yield.

Rents are going to fall. Housing benefit will be reduced. Rents fell in 2008 during the credit crunch, they will fall again. If housing costs fall the measure of the cost of living will fall and the government will be able to justify falling welfare benefits. The trick they need to pull off is to do it slowly enough to prevent a full blown depression. There is a body of opinion the Tories are too keen to cut - time will see if that opinion is correct or not. Either way the current plans will see falls in housing costs, be that rent or purchase. Public pressure may change those plans of course

[Si1]

I do not doubt that the price would fall, but as it does, the potential rental yield will rise. This will make the property an attractive investment long before it reaches the levels of being affordable to someone on an ordinary wage.

It seems to me that BTL investors in the early to mid part of the previous decade had their eyes more on the capital gains increases than the rental yield.

as well as falling rents, falling housing benefits, also factor in sentiment

this can turn just as negative as it was positive before - from both banks and speculators, no funding, no gumption, BTL as a culture may die for a while.

And then there's the demographics and occupancy ratio underpinning long term stagnation...

[Guest sillybear2]

So the only option for the bankers, if they want to make loans, is to crash the market?

Exactly, rates no longer matter, they're probably hoping for massive inflation busting pay increases in order to bail out the unaffordability. It worked for them!

[eric pebble]

Exactly, rates no longer matter, they're probably hoping for massive inflation busting pay increases in order to bail out the unaffordability. It worked for them!

Nah... The VI's will fry and eat their babies before they let house "prices" decline...

[leicestersq]

no.

a 10k deposit at 5% may enable 200k mortgage

under 25% deposit, enables 40k mortgage

very big difference, forces people to plan

Also forces people to save that 10K, at 0.5% interest rates.

Nice.

[Si1]

Also forces people to save that 10K, at 0.5% interest rates.

Nice.

considering that the single biggest contributor to the downfall of the young was the infernal housing bubble and loose lending, feigning concern for the them at this stage is hyipocritical to say the least, over the medium term exchanging the difficulties of an impossibly large mortgage for the difficulties of saving a deposit is rewarding the responsible and making housing more affordable. good riddance.

have some shame

[Tired of Waiting]

I think the key point is..."families could be prevented...". There is a bit of a jump from this to an outright ban on any LTV greater than 75%.

It is a promising start though.

+ 1

I really doubt the government will bring a limit below 90% LTV. It will probably 95%, and with loopholes.

.

Edited June 16, 2010 by Tired of Waiting

[non frog]

Nah... The VI's will fry and eat their babies before they let house "prices" decline...

I believe the proposed new Barrat developments have this baby frying feature ready built into their kitchens.

[Tired of Waiting]

Everything is being geared to not rising BoE base rate. They know that with the debt the country has that raising BoE base rate to cool inflation in general and HPI mean we as a country just pay more to our creditors.

So they will cull inflation with tax rises and cuts and kill HPI by limiting mortgages. Makes sense.

Now I think BoE base rate will be between .5 and 1% for the next ten years.

Yes, I agree that it makes economic sense. But politically it will be very hard to do - properly - a low LTV. The protests would be too strong. The telegraph is already pre-spining it: See this part

(...) they are likely to include restrictions on the loan-to-value ratios offered to customers. For instance, families could be prevented from taking out a mortgage for anything more than 75 per cent of the value of their home.

Evil spinning: "Familes" ... "prevented" ... 75%

The government will have political power to limit LTV at only 90 or 95%.

Still, it will curb demand, and help a little.

[dances with sheeple]

+ 1

I really doubt the government will bring a limit below 90% LTV. It will probably 95%, and with loopholes.

.

I think they want to let SOME of the steam out of the market without letting it collapse, because the banks just can`t lend punters 300k to buy a flat anymore? I believe the announcements like this, and about CGT are designed to scare some downward movement into the market which will be arrested by allowing banks to lend between 75% and say 90% LTV as they think appropriate? This price standoff is hurting the banks because the risk is too great in lending the multiples needed at the moment, but banks are banks and banks need to lend? and I still say the potential young voters for Dave in five years time will think lower house prices are a good thing. If you had way more money than you could ever use, and got your satisfaction from the number of people voting for you, what would you do?

[Tired of Waiting]

I think 75% LTV cap is extremely unlikely, as wonderful as that would be

Last year DC was talking about a possilbe 90% cap, which would still be good and a lot more likely

Also, only last week Grant Shapps was talking about a plan to free up mortgage lending

Grant Shapps knows nothing of economics, or of the housing market. He is very shallow, and short-sighted. Sadly.

[dances with sheeple]

Yes, I agree that it makes economic sense. But politically it will be very hard to do - properly - a low LTV. The protests would be too strong. The telegraph is already pre-spining it: See this part

Evil spinning: "Familes" ... "prevented" ... 75%

The government will have political power to limit LTV at only 90 or 95%.

Still, it will curb demand, and help a little.

Eh, all this is already happening, otherwise mortgage lending wouldn`t be where it is? I don`t see people protesting in the streets? Society is to fragmented for meaningful protest against this, what can sheeple do anyway, if the bank says no it`s no, wait, or buy a cheaper house?

[Tired of Waiting]

Average UK savings £2,205 as of Jan 2010. So I make the *new* average UK house price 2205x4 = (drum roll) ...... £8,820

Source

That data is misleading. In the same article: "The Bank of England aggregate data which suggests that the mean level of savings stands at £23,500 for the average Brit." (...) "the wealthiest 5 per cent of Brits, who hold a third of all savings."

And the bottom third of the population doesn't own a property, and probably has net debt on credit cards. That means that those 23k is also misleading. The top 2/3 has more than 23k, and the top half even more. There are millions of families with money enough for deposits. What will influence this people will be interest rates and future prices expectations.

[Tired of Waiting]

Pity we didn't have Keynsians in charge for the last few decades.

They'd now be increasing the LTV from a low value held throughout the boom years to give the economy a counter-cyclical boost.

BTW not blaming the current lot for doing this or that it's the wrong thing to do it now. They've been dealt a raw hand by the previous idiots.

Exactly!

Keynes was just sensible, save in good times, to smooth over harder times - counter-cyclical !

But the national ignorance about that is not the people's fault, It was the media's fault. Particularly the "public service" BBC.

[Guest sillybear2]

considering that the single biggest contributor to the downfall of the young was the infernal housing bubble and loose lending, feigning concern for the them at this stage is hyipocritical to say the least, over the medium term exchanging the difficulties of an impossibly large mortgage for the difficulties of saving a deposit is rewarding the responsible and making housing more affordable. good riddance.

have some shame

Unless we help young people how will they ever be able to buy our over-inflated houses off us

Spot on!

[Tired of Waiting]

I think they want to let SOME of the steam out of the market without letting it collapse, because the banks just can`t lend punters 300k to buy a flat anymore? I believe the announcements like this, and about CGT are designed to scare some downward movement into the market which will be arrested by allowing banks to lend between 75% and say 90% LTV as they think appropriate? This price standoff is hurting the banks because the risk is too great in lending the multiples needed at the moment, but banks are banks and banks need to lend? and I still say the potential young voters for Dave in five years time will think lower house prices are a good thing. If you had way more money than you could ever use, and got your satisfaction from the number of people voting for you, what would you do?

I agree that they may want "to let SOME of the steam out of the market without letting it collapse". But a 75% LTV would bring a total collapse, of, say, some 30% or even more (guestimating here). Only people with equity would be able to afford a 25% deposit. The majority of FTB would not. I guess most FTB would even struggle to afford a 5% deposit! And I agree that cheaper properties would be to their advantage in the medium term, but I doubt the gov. would have the political strength to endure the consequences of a hard crash, of say, 30%, or even more.

[jareth]

Pity we didn't have Keynsians in charge for the last few decades.

They'd now be increasing the LTV from a low value held throughout the boom years to give the economy a counter-cyclical boost.

BTW not blaming the current lot for doing this or that it's the wrong thing to do it now. They've been dealt a raw hand by the previous idiots.

An economy in rude health shouldn't need to keep borrowing but ours did, both public debt and private debt. Perhaps the economy wasn't as good as Brown kept saying it was and the borrowing (such as 125% Northern Rock lending) was a 'necessary' Keynsian spending splurge that got out of hand. I'm not sure what conclusion can be drawn from this; Labour Chancellors don't know what they are talking about or Labour Chancellors lie?

[pete.hpc]

But what mechanism is going to reduce that property to 175K if it is capable of providing a gross yield of 6% at 245K?

40% CGT and 40% tax on rental profits?