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classixuk

Lenders Prepared To Lend More

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I don't believe this! What is the world coming to?

http://observer.guardian.co.uk/cash/story/...1572356,00.html

Some of the article:

"In the past, lenders have calculated how much they are prepared to lend by multiplying the borrower's income by a standard factor - typically between three and four times one borrower's salary, or two-and-a-half times joint borrowers' salaries. But Alliance & Leicester has become the latest big lender, joining the Halifax, Nationwide, Abbey and Cheltenham & Gloucester, to work out how much prospective borrowers can afford by analysing their disposable income and outgoings."

Explains why FTBs etc have been able to afford such ridiculously high house prices I guess.

"Simon Tyler [of Chase De Vere Mortgage Management] says such borrowers should shop around to see which lender will offer the biggest loan"

Simon Tyler, is that your answer to solving the affordability of housing? Heck, I think I'll start getting loans of £3 million pounds if I'm offered them. That should get me a nice hotel or two. Why start on Old Kent Road? Just follow Simons advice! Do Not Pass go. Do Not collect £200. Advance to Mayfair immediately.

Problem is, it won't be me who wins the game buying property using this strategy and that's 101% guaranteed!

IDIOT! He and Kirstie Allsop should shack up together and move out to Iraq seeing as they seem to know everything about what makes a poor place into a great place to live AND how to obtain enough finance to do it. Then again perhaps not. Imagine; Tony Blair could finally produce proof that Iraq was harbouring weapons of mass destruction!

Edited by classixuk

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To an extent I think it applies to all lenders. When I looked into a mortgage several months ago I was offered on a basis of 60% of my disposable income.

Because I had been saving hard and cuttng costs for a while this amounted to a ludicrous figure - one that I could never realistically have afforded.

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"borrowers should shop around to see which lender will offer the biggest loan"

Biggest... rather than cheapest?

Have they forgotten this is money that needs to be repaid?

The lack of financial literacy on the part of many members of the British public is a national embarrassment. 

You can say that again Dr B!

Anyone fancy a £4million loan? Apply to me on this thread!

Payments will be half a heart, one eye, use as a sex slave for the next 10 yaers and 18 Million back over one month or your hamster gets it!

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I was talking to a mortgage broker the other day and here is a summary of what he told me.

Lenders are moving away from traditional lending multiples and towards “Affordability” as a measure of ability to pay the loan back.

The average loan he is writing at the moment is around £120-30K on household incomes of £25-35k (Yorkshire)

Most enquiries are seeking the maximum possible to borrow.

Interest only is the way to go for BTL loans

I’m not convinced much has changed with the lenders cavalier attitude to lending.

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The BOE have totally lost the plot and totally ignored their mandate for financial stability.

Moreover they are still up to their tricks trying to encourag debt-fuelled consumption and they only way this is possible isfor the lenders to become even more lax in their lending.

Great way to ultimately destroy the economy.

Edited by OnlyMe

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Great way to ultimately destroy the economy.

What if they're thinking, "Let's get the people into as much debt as possible, then they'll have to go out and work to pay those debts off = Low unemployment". The fcat that there have to be jobs to stop unemployment rising may have escaped their notice, but what the heck? We can all be employed by Gordon Brown can't we? It's about time communism reached the UK shores! ;)

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What if they're thinking, "Let's get the people into as much debt as possible, then they'll have to go out and work to pay those debts off = Low unemployment". The fcat that there have to be jobs to stop unemployment rising may have escaped their notice, but what the heck? We can all be employed by Gordon Brown can't we? It's about time communism reached the UK shores! ;)

With the scale of debts the employment availale for many may not be of any use. Much easier to default. People won;t default whislt they are stil up on the game but they will if they are down on teh game and see no way of paying off the loans.

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Basically it's just a ploy to loosen up lending even further. We got a quote from an 'affordablity' based lender. As we genuinely have low outgoings - no car, no travel costs, no kids, no loans, etc. the sums available were 40% more than most high street banks, most of whome now cannot lend enough to enable most young people to buy the cheapest property in their area.

All well and good, but the monthly repayments would have been recklessly high and crippling. How does throwing more debt at people make anything more affordable?

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Guest KingCharles1st

I don't believe this! What is the world coming to?

http://observer.guardian.co.uk/cash/story/...1572356,00.html

>>

This is smacking of sheer desperation by the lenders. It is obvious they are trying to get back ahead of the game. It's obvious the lending market is now totally insane, they must realise it too.

The problem is with the financial industry, banking etc, that thosewho actually dictate policy, or who are in the "think tank"areas, all earn so much effing money, they almost now live in a different world.

Lets say the people who CAN afford more are the IT professionals, the mortgage advisors, doctors, accountants etc etc, well thats fine, but there aren't that many of them compared to the scumbag 1 and 2 bedroom flat /house population.

I think they are trying to move their lending platforms from unsecured (credit cards etc) to dsecured (homes and businesses.)

I think when their books re-balance, the BOE and lending institutions will hit the reset button, and suddenly we will be seeing them come downhard on extravagant lending.

Surely the risk of 6 to 7 times multiple incomes is too high, even for them?

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The lenders know the government have let things go too far.

So they offer a lifeline to Brown and co..... we'll lend more, it'll prop up the house market, you'll stay in power, wait for a disaster and blame the sudden collapse on that.

There was a time when this sort of security consulting was offered by companies to developing economies where they were trying to set up shop. Often the solutions were beneficial to all concerned. In a mature economy benefits are likely to be more one sided.

/G

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With the scale of debts the employment availale for many may not be of any use. Much easier to default. People won;t default whislt they are stil up on the game but they will if they are down on teh game and see no way of paying off the loans.

I agree with this, & believe that default (ie bankruptcy) will be a major factor in the coming downturn, on a scale not seen before - the social stigma that used to discourage it will have eroded (since so many are doing it), & it will be seen as an easy getout of debt, (mortgage, student loans, whatever); I'm interested to see how the lenders will deal with default on a massive scale, eg like the scale of repossessions in the last crash, since I don't think too many will have enough real resources to be able to withstand a deluge of default - interesting times we live in..

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This could be looked at in a different way. OK..the lenders know they have been lending too much to too many people. Even if they only lend 3.5x their income that doesn't mean the customer can afford to pay the mortgage. The banks must know that hard times are ahead and they will be in the firing line when it all goes wrong so this could be an attempt to get ahead of the game.

Look at it this way: A) earns £20k a year, has no loans, credit cards, student debt or any children. B) earns £20k a year, has £10k of loans and credit cards, £6k student loan and has two kids under five (childcare is very expensive). It is silly to think that both can afford the same mortgage payments.

I think under this scheme, while there may be people who could lend more (and if they can afford it and want to why not?) but a lot of people will find they can not get as high a mortgage as they need.

If we take into account the amount of debt, credit cards, car loans, not to mention student debt, then this could reduce the mortgage available to a lot of people and help drive down house prices in the long run.

It may not, therfore be as bad as it first seems. Just my humble opinion though <_<

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WHAT is going on in the Boardrooms?

Why are the top managements of these lenders not making the obvious connection between the losses likely to be generated by these aggressive lending policies, and headline stories like this:

Warning over £1 trillion mountain of debt

Edmund Conway and Becky Barrow, Daily Mail

16 September 2005

"BRITAIN'S £1trillion personal debt mountain may be starting to fall apart with dire consequences for millions of households, the International Monetary Fund warned yesterday.

They rose by 37% to 11,195 between April and June compared to the same period last year, according to government figures.

The IMF's experts said that if the increase in bankruptcies continued, it would be a serious threat to the UK economy

. . .

A debt advice charity warned recently that a typical caller to its advice line has debts of nearly £29,000, 15 per cent higher than last year.

The Consumer Credit Counselling Service said that most callers are couples in their midthirties with children and a mortgage who have debts from at least ten different sources, including a number of credit cards.

Steve Cullen, a debt specialist at the Citizens' Advice Bureau, said: 'Four or five years ago, I would have been astonished to help someone with £100,000 debt. Now it is commonplace.'  "

...MORE: http://www.thisismoney.co.uk/credit-and-lo...2&in_page_id=62

Perhaps the explanation lies in the fact that banks no longer have to take the losses resulting from their lending. The loans are packaged and sold as mortgage backed securities at a profit.

This has created an incentive to lend as much as possible, package it and sell it on. The banks profit, and the "greater fool turns out to be the eventual owner of the MBS - generally an investment or pension fund, the beneficiaries (and thus future loan losers) of which are us, then general public.

Banks no longer need to lend prudently, as they shift the risk back to us (or another investor elsewhere in the world). Of course when it blows up, the investors will demand better quality or higher yields. By then the MBS and credit derivative demi-gods in the city will have made their huge bonuses and disappeared into the sunset.

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This could be looked at in a different way. OK..the lenders know they have been lending too much to too many people. Even if they only lend 3.5x their income that doesn't mean the customer can afford to pay the mortgage. The banks must know that hard times are ahead and they will be in the firing line when it all goes wrong so this could be an attempt to get ahead of the game.

Look at it this way: A) earns £20k a year, has no loans, credit cards, student debt or any children. B) earns £20k a year, has £10k of loans and credit cards, £6k student loan and has two kids under five (childcare is very expensive). It is silly to think that both can afford the same mortgage payments.

I think under this scheme, while there may be people who could lend more (and if they can afford it and want to why not?) but a lot of people will find they can not get as high a mortgage as they need.

If we take into account the amount of debt, credit cards, car loans, not to mention student debt, then this could reduce the mortgage available to a lot of people and help drive down house prices in the long run.

It may not, therfore be as bad as it first seems. Just my humble opinion though  <_<

It's a fair point, 2005. I used to feel a bit this way. With traditional multiples the furgal are not rewarded - why shouldn't someone choose a better house, or any house at all, in preference to spending all their dosh on nonsense and getting big credit card bills.

The downside is, handing out big mortgages - even to the ultra-careful spenders - simply inflates property prices upwards and upwards.

Edited by CrashedOutAndBurned

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Good point (about infalting house prices) but how many people these days do you know with no debt? I don't know anyone.

One thing I would be interested in is what the full list of 'debt' will include. Will it include student debt? If it does then this will surely have a knock on effect on a whole generation. Don't forget the higher earners tend to have larger student debt. It costs a lot more to train as a doctor or lawyer than to do a 3 yr degree in sociology. The introduction of top up fees and the shift of tutition fees from parents to students will also have an impact.

I think the writing is on the wall and I think they all know it. We are seeing the ground being prepared for hard times ahead :(

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Basically it's just a ploy to loosen up lending even further. We got a quote from an 'affordablity' based lender. As we genuinely have low outgoings - no car, no travel costs, no kids, no loans, etc. the sums available were 40% more than most high street banks, most of whome now cannot lend enough to enable most young people to buy the cheapest property in their area.

All well and good, but the monthly repayments would have been recklessly high and crippling. How does throwing more debt at people make anything more affordable?

For quite a while now i've thought that mortgage companies will loosen up lending to drum up business in a slow market............As long as 10 year fixed interest rates don't go up much they could offer say 6 times salary on the condition that you get a 10 year fix......(as a safeguard against hikes in IRs)...

Such products are already available to trainee doctors and lawyers....and the like......but will IMO become universal pretty soon..........

6 times salary sounds a huge multiple of course but if you borrow that much at 6% ....the interest component of the mortgage takes up 36% of your gross salary...(which is approx 48% of your net salary if you're an average earner)...certainly more than most of us would like to pay but no higher percentage than most FTBs were paying in the high interest 1980s ...(3.5 times salary @ 10% interest net of MIRAS)).....

Edited by Michael

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As an Observer reader, I, too, have seen this article today on the front page of the Cash section.I am not at all surprised that ever-bigger loans are being offered to desperate FTB's and others.

I was initially more surprised, frankly (perhaps naievely so) about the total lack of comment on this development, by the Observer journalist who wrote the article, which reads like an advert for 'how to obtain as much cash as possible for your mortage'.It is, as others have rightly pointed out in this thread, total madness, in the face of a looming recession and possible HPC, for people to take on bigger and bigger debts.

And yet.........Lest we not forget the points made in another thread about the economic power in the property market wielded by the media community, as well as the political community.With vested interests at stake, perhaps it isn't so surprising.It is a good reason why we should retain our own common-sense and consideration in matters of finance.

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I agree with this, & believe that default (ie bankruptcy) will be a major factor in the coming downturn, on a scale not seen before - the social stigma that used to discourage it will have eroded (since so many are doing it), & it will be seen as an easy getout of debt, (mortgage, student loans, whatever); [Clouseau]

Easy or not, bankruptcy will no longer cancel student loans, as explained in 'Student Loans and Bankruptcy':

http://www.nusonline.co.uk/info/money/270637.aspx

It was for a time possible to discharge yourself from liability to repay (that is, cancel) the second type of loan by declaring yourself bankrupt, and over 1000 students and graduates did just that. The Government had never intended to allow this, however, and in England and Wales they used the Higher Education Act of 2004 to close the loophole. Similar provisions have since been made for Scotland and Northern Ireland.

Mortgage-style loans were always protected from bankruptcy so the law in relation to these remains unchanged.

Therefore, regardless of the type of loan that you have (and whilst you are still able to declare yourself bankrupt should you wish to do so) any outstanding student loans will not be cancelled and must still be repaid according to the loan agreement you signed.

Also see 'Paying it off: A guide to coping with your graduate debt.':

http://www.careers.manchester.ac.uk/moving/payingitoff/

If you do decide to declare yourself bankrupt you may find that you have to pay your debt anyway, possibly at a higher rate of interest. Student loans are now exempt from bankruptcy laws so will not be cleared under any circumstances.

Perhaps the explanation lies in the fact that banks no longer have to take the losses resulting from their lending. The loans are packaged and sold as mortgage backed securities at a profit. [smell the Fear]

According to the Council of Mortgage Lenders only around 10% of UK mortgages have been securitised as reported in their 'Budget 2005 Submission':

http://www.cml.org.uk/servlet/dycon/zt-cml...onses_2005_0228

The UK is already the largest mortgage backed securitisation market in Europe and about 10% of mortgage loans have now been securitised.

What percentage of new loans are being securitised?

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I don't believe this! What is the world coming to?

http://observer.guardian.co.uk/cash/story/...1572356,00.html

Some of the article:

"In the past, lenders have calculated how much they are prepared to lend by multiplying the borrower's income by a standard factor - typically between three and four times one borrower's salary, or two-and-a-half times joint borrowers' salaries. But Alliance & Leicester has become the latest big lender, joining the Halifax, Nationwide, Abbey and Cheltenham & Gloucester, to work out how much prospective borrowers can afford by analysing their disposable income and outgoings."

Explains why FTBs etc have been able to afford such ridiculously high house prices I guess.

"Simon Tyler [of Chase De Vere Mortgage Management] says such borrowers should shop around to see which lender will offer the biggest loan"

Simon Tyler, is that your answer to solving the affordability of housing? Heck, I think I'll start getting loans of £3 million pounds if I'm offered them. That should get me a nice hotel or two. Why start on Old Kent Road? Just follow Simons advice! Do Not Pass go. Do Not collect £200. Advance to Mayfair immediately.

Problem is, it won't be me who wins the game buying property using this strategy and that's 101% guaranteed!

IDIOT! He and Kirstie Allsop should shack up together and move out to Iraq seeing as they seem to know everything about what makes a poor place into a great place to live AND how to obtain enough finance to do it. Then again perhaps not. Imagine; Tony Blair could finally produce proof that Iraq was harbouring weapons of mass destruction!

This is how is has been done in the US forever. Well untill just the past few years. They would add up your housing payement + your other bills, like credit cards, car payments etc, not bills like power or phone. Then they would only let you go up to 34-36% of that.

Now they are pushing no doc loans.

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I agree with this, & believe that default (ie bankruptcy) will be a major factor in the coming downturn, on a scale not seen before - the social stigma that used to discourage it will have eroded (since so many are doing it), & it will be seen as an easy getout of debt, (mortgage, student loans, whatever); I'm interested to see how the lenders will deal with default on a massive scale, eg like the scale of repossessions in the last crash, since I don't think too many will have enough real resources to be able to withstand a deluge of default - interesting times we live in..

Perhaps we are witnessing natural justice in action. The inherent unfairness of the debt based financial system will be its own downfall. Many individuals have clearly lost faith in the process, realising that it screws them over. So what do they do?

Given a chance, they screw the system right back. Easy bankruptcy is that chance.

Think of Robin Hood - the Sheriff of Nottingham went too far with oppressive property control and unfair treatment. The result is an uprising. Perhaps borrowers are rising up in the only way they can.

By this I don't mean they are doing it consciously. Just that they move as a herd and react instinctively.

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  • 301 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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