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F T: Fall In Lending Fuels Housing Market Fears

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"Fall in lending fuels housing market fears"

http://www.ft.com/cms/s/0/cf212b2e-bf15-11df-a789-00144feab49a.html

Fall in lending fuels housing market fears

By Daniel Pimlott, Economics Reporter

Published: September 13 2010 12:24 | Last updated: September 13 2010 12:24

Lending to first-time home buyers fell in July, adding to signs of weakness in the UK housing market.

Mortgages granted to first-time buyers dropped to 19,400 from 19,700 in June and 20,100 a year earlier, the Council of Mortgage

Lending to first-time buyers in the three months to July rose by 8 per cent compared with the same period a year earlier, the slowest growth in almost a year.

People buying their first home are now having to put in larger deposits after lending terms had eased slightly earlier in the year.

The average deposit size was 24 per cent of the cost of a property, the same as in June but higher than the 21 per cent deposit required in the two months before that. The size of deposits compared with home value remains close to its largest since records began in 1979.

First-time buyers are seen as key to the functioning of the housing market, providing the new demand and cash that oil the system and allow properties to keep changing hands.

People moving home are experiencing a slightly better market – the number of loans to those who already own a property rose 11 per cent in July to 36,900 compared to a year earlier. But deposit sizes also rose from 33 per cent to 35 per cent of home value.

With the Bank of England’s policy rate at a record low, interest rate costs are relatively subdued. First-time buyers’ interest takes up 13 per cent of income – the lowest since 2004. Home movers interest payment make up about 10 per cent of income, the lowest since the early 1970s.

“Lending criteria remain tight, underpinned by caution on the part of both borrowers and lenders in the light of continuing economic uncertainty,” said Paul Samter, economist at the CML. The CML data cover 94 per cent of the residential mortgage market.

Other housing market indicators have been subdued in recent months. Both the closely watched Nationwide and Halifax indices have pointed to falling or flat house prices for much of the year. Overall mortgage approvals have also been flat this year, according to the Bank of England.

But residential construction has been falling rapidly in recent months, and reservations for newly built homes has recently hit an all-time low, according to the Home Builders Federation.

Fears that the housing market is on the cusp of a second downturn – amid signs that the economy is slowing down and ahead of brutal public sector cuts – are a concern because lower house prices and fewer transactions could translate into greater losses for banks. Many small businesses also rely on property as collateral for their business loans.

Edited by Tired of Waiting

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I find that I do not fear a collpase in the housing market.

In fact, I am feeling kinds groovy about it. :P

I know! And the FT had an editorial in favour of lower HP just 1 or 2 weeks ago! Remember? I think we had a thread about it.

Edited by Tired of Waiting

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The size of deposits compared with home value remains close to its largest since records began in 1979.

I also heard on 5 Live this evening that those FTB deposits are predominantly Bank of Mum + Dad funded.

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I also heard on 5 Live this evening that those FTB deposits are predominantly Bank of Mum + Dad funded.

8 out of 10 apparently.

http://www.telegraph.co.uk/finance/personalfinance/7967974/Eight-out-of-10-first-time-buyers-get-deposit-from-parents.html

It is the highest proportion on record, according to the exclusive figures from the Council of Mortgage Lenders.

And it is more than double the number reported during the same period in 2005, when 38 per cent received financial support.

Melanie Bien, director at mortgage brokers Private Finance, said: “Without substantial financial assistance from the Bank of Mum and Dad, most first-time buyers have no chance of getting on the property ladder."

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I also heard on 5 Live this evening that those FTB deposits are predominantly Bank of Mum + Dad funded.

And when 'Mum & Dad' realize that the market is heading south just like it did in the early nineties I suspect that the bank vault door will slam shut...

...as ever, sentiment and peoples' perceptions of the way the market is heading are key to the way the market heads.

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And when 'Mum & Dad' realize that the market is heading south just like it did in the early nineties I suspect that the bank vault door will slam shut...

...as ever, sentiment and peoples' perceptions of the way the market is heading are key to the way the market heads.

I agree, but let's not forget about everything that the Government has done to support homeowners and prop up house prices to this point.

Don't forget about the (now fixed at 5 years) election cycle. Drops in the next 2-3 years are important to give the impression of a house price receovery at the next general election.

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With the Bank of England’s policy rate at a record low, interest rate costs are relatively subdued. First-time buyers’ interest takes up 13 per cent of income – the lowest since 2004. Home movers interest payment make up about 10 per cent of income, the lowest since the early 1970s.

13% of FTB income for interest? That sounds incredibly low to me...

Home owners stuck on a variable or tracker paying 10% I can believe, but current first time buyers at 13% when a typical mortgage rate will be somewhere close to 5%.

Perhaps they're talking about the interest on credit cards and overdrafts...

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I also heard on 5 Live this evening that those FTB deposits are predominantly Bank of Mum + Dad funded.

Yes, I've noticed that quote too.

The scariest thing is that it seems that it is mainly the banks that are holding the sheeple back. If LTV were higher, the sheeple would still be signing on the dotted line by the millions. :(

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I agree, but let's not forget about everything that the Government has done to support homeowners and prop up house prices to this point.

Don't forget about the (now fixed at 5 years) election cycle. Drops in the next 2-3 years are important to give the impression of a house price receovery at the next general election.

Yes, I agree (I've been saying something similar for a while).

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13% of FTB income for interest? That sounds incredibly low to me...

Home owners stuck on a variable or tracker paying 10% I can believe, but current first time buyers at 13% when a typical mortgage rate will be somewhere close to 5%.

Perhaps they're talking about the interest on credit cards and overdrafts...

Hmm, maybe not... for example, a FTB buying a 175k "property" with a 35k deposit (i.e. 140k outstanding) can get a fixed 2 year deal from ING Direct for 3.7%, which will cost about 431 quid a month in interest payments. Assuming a wage of 40k, which is a take home of 2460 per month, it works out as 17.5%.

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13% of FTB income for interest? That sounds incredibly low to me...

Home owners stuck on a variable or tracker paying 10% I can believe, but current first time buyers at 13% when a typical mortgage rate will be somewhere close to 5%.

Perhaps they're talking about the interest on credit cards and overdrafts...

Yes, that sounded way too low.

Let's suppose a 100k "starter home" (not in London!), 5% interest = £5k. Salary = £38.5k.

That is well above average salary - particularly since we are talking "not in London".

Perhaps they were talking 13% of household income?

That also indicates that now-a-days to be a FTB people need to have a higher than average income!

The world Britain is upside down.

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The only positive aspect of this is that these silly middle class people are in effect bailing out the banks, and the country. Many are probably MEWing their properties to put a deposit together. Since the equity in their homes was a windfall from the bubble, there is a weird symmetric fairness in it.

EDIT: The problem for us, waiting to buy, is that it delays the crash. But at least it will allow the crash, without breaking the financial system and the country again. We will just have to be patient, for a while longer. (I know, I am "Tired of Waiting" for this fecking crash as well! But what can we do? :( )

Edited by Tired of Waiting

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Many are probably MEWing their properties to put a deposit together.

I know I shouldn't delight in others misfortune, but the dark part of my character can't help find some satisfaction when both parents + kids getting into negative equity after inflating the market.

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I know I shouldn't delight in others misfortune, but the dark part of my character can't help find some satisfaction when both parents + kids getting into negative equity after inflating the market.

Yeah, sometimes I feel a little like that too, I have to confess. But not usually, and not for all these idiots. Some are b@stards, and were smug for way too long. But most are just stupid, and weren't too smug about it.

Not sure if - on average - they will get into negative equity. They may just lose part (most?) of their equity. After all, many bought their houses years ago, and should have a huge equity in them.

UNLESS... they've been MEWing their houses for holidays and cars... :unsure:

You may be right. :P

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Hmm, maybe not... for example, a FTB buying a 175k "property" with a 35k deposit (i.e. 140k outstanding) can get a fixed 2 year deal from ING Direct for 3.7%, which will cost about 431 quid a month in interest payments. Assuming a wage of 40k, which is a take home of 2460 per month, it works out as 17.5%.

You are right, I forgot to take the deposit out, above.

But even in your example, a FTB would have to have an income above the national average, which is... bonkers.

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And when 'Mum & Dad' realize that the market is heading south just like it did in the early nineties I suspect that the bank vault door will slam shut...

...as ever, sentiment and peoples' perceptions of the way the market is heading are key to the way the market heads.

I do hope so. But it is taking too long for that.

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  • 149 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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