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Mortgage Madness

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From Saturdays Daily Mail. Click on link and add yout own comments on the article.

http://www.dailymail.co.uk/pages/live/arti...in_page_id=1804

Mortgage madness

by SEAN POULTER, Mail online 09:02am 15th October 2005

Comments Reader comments (10)

Sale signs

Banks are tearing up the rules limiting the amounts homebuyers can borrow and encouraging them to take on enormous mortgages.

A young working couple without children and on an average wage can now borrow close to £245,000 - 80 per cent more than in the past.

The figure amounts to a staggering 5.41 times their joint gross income of £45,248. The change to home loan rules means that almost all homebuyers will be able to borrow more. But critics have warned the deals could encourage borrowers to take on dangerous levels of debt.

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Banks and building societies are offering the 'mega-mortgages' as they battle for business in a cooling market.

This has already seen a raft of loans equivalent to 100 per cent of a property price, with some going as far as 125 per cent.

But the biggest change involves a shift away from the traditional system of basing home loans on a multiple of the buyer's income.

'Affordability tests'

Instead lenders are switching to an 'affordability test', in which most buyers will qualify for much bigger loans after an assessment of their income, debts and spending patterns. The shift flies in the face of warnings from the City watchdog, the Financial Services Authority, and the Bank of England.

The FSA has argued that a maximum home loan of three times a single person's salary and twice a couple's joint income is prudent.

Many lenders have already stretched this to four times for a single buyer and three for a couple. However, the new regime allows much more. It looks at the amount of spare cash available each month, after food, bills, other essentials and debt repayments, before deciding the maximum loan possible.

Keith Tondeur, of the debt advice charity, Credit Action, was worried.

"The potential harm is huge. This is secured lending at a big level, which means people's homes are at stake," he said.

"If there is a wobble in house prices, and the economy slows leading to rising unemployment, what are people with these huge home loans going to do? These sorts of loans enable people to get on to the housing ladder, but you have to look at the cost. These loans risk tempting people to over-commit."

A study by the Alliance & Leicester denies the new system is reckless.

Director of mortgages, Stephen Leonard, said: "Affordability provides a more responsible approach."

Comment Add your comment Reader comments (10)

10 people have commented on this story so far. Tell us what you think below.

Oh dear oh dear, will we never learn our lesson! Some people have very short memories if they have forgotten the misery caused by the negative equity trap that thousands of people found themselves affected by not so long ago.

Time for the lending institutions to be forced to take a much more sensible approach rather than winning business whatever the consequences.

- Ian Webb, Juzanvigny, France

I feel this move will lead to irresponsible lending: people will have to ask themselves what if they cannot afford the repayments on such huge mortgages if a) interest rates increase (even after a fixed rate period) B) their circumstances change or they lose their job and c) find that their income protection does not cover their claim.

People also have to ask how will this be funded - will the majority just have interest only basis with a poor form (or no) repayment vehicle? It is very public about the poor rates of return for endowment policies that will leave people with large shortfalls at maturity.

People should not be encouraged to over borrow beyond their means - basically, house prices need some form of correction as they have near-on doubled over the past 5 years, but peoples' earnings have not!

People should ask themselves this simple question: if the current rate is low (at say 5%) and the new rate could go to 7%, then the new repayment could increase by nearly 50%.

- Michael Dix, Fleet, Hampshire

This is madness and the borrowers will suffer when interest rate goes up or a partner stops working due to childbirth or made redundant, borrowers may lose their homes.

- Dr Ooi, London, UK

Yes! Great idea. I have been a London homeowner since I was 23 years old. Now at the age of 55 an imprisoned tenant, the result of a divorce. This sounds like my last glimmer of hope. Why do people worry about what may or may not happen to others, as far as the housing market is concerned? The recent years have proved that you cannot go wrong as a house owner, even if you wanted to!

- Brando, London, UK

Over recent months the housing market is beginning to stabilize. So long as inflation can kept under control and consumer confidence kept high there should be a steady landing. However history tells us that when prices have increased dramatically as they have done in recent years there will be a heavy correction in the next few years. That could mean negative equity for a lot of owners.

- Adam, Hertfordshire, UK

My mother used to pay a bill the day we received it. I was brought up in England on thrift. We ate well. were clean and tidy and owed nothing. I've continued this philosophy into adulthood, so that my husband and I own outright a house that would cost £2 million pounds over there. We live well, travel extensively, and can sleep at night. When did debt become a way of life in the UK? It will all end in tears.

- Bernadette, Canada

In some ways it is good that the Banks are lending money to homebuyers as it keeps the housing market alive and that helps to keep the economy afloat. If people cannot pay their mortgage through circumstances beyond their control, it would be a good idea if it was possible to take insurance out to cover your mortgage payments. Oh! You can take insurance out! Then why is it most people are irresponsible and opt out of insurance cover!

- Mark, Bedfordshire, UK

I would just like to mention that mortgage insurance only covers a certain percentage of your monthly mortgage payments. Also some insurers only pay out if you have been unable to make payment for 6 months. To me the whole thing is ridiculous. We already know that society today has considerable debts. What's going to happen in the next 10 years? The finance houses are the only ones that win, don't they make enough profit already?

- jessica, Canada

For banks to offer nearly 1/4 million pounds for a mortgage to young couples is sheer insanity and for many it will end in tears. It should be noted that most of these types of mortgages have a compulsory indemnity insurance policy in case the lender defaults on the loan, but the banks are still in a win-win situation. If the loan is defaulted, the insurance pays the Banks out but the lenders still owe any shortfall when the house is repossessed and sold at a knock down cost.

The old formulae of 3 x major bread winner plus 50% of partners income for mortgage lending is far safer. The banks should be more responsible rather than just increasing market share and Government should curtail their excess's with financial sanctions.

- Mike Godfrey, Denia, Spain

I have had an endowment mortgage [recommended at that time] for 22 yrs. Now there is a shortfall predicted no one wants to know, these bankers are irresponsible, I even had trouble paying capital repayments to them a while ago as this is not beneficial to there business. This "must have it now" society can not go on for ever.

- Raymond John Dickinson, Worksop, UK

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Yer Bugger!!!

Just been reading this on the bog and now youve pi$$ed on me chips :(

In relation to this article. Why is this not being mentioned on national news? The FSA are saying that its scandelous but this Labour Government seems to have a cencorship on the mainstream TV press!

GB has been battered by everyone on his 'false economy' but do we hear about on the 6 O'Clock News?

They seem to find something else to shadow it. Take Bird-Flu for example. Sounds a load of crap to me.

Only 60 people have dies from it world-wide.

It cannot be contracted by humans BUT it MAY be able to mutate.

It is in Turkey but it MAY come to Britain.

It MAY kill from 50,000 to 2Million people.

What a load of scare-mongers.

If China wants it MAY throw some Nukes at us.

Al Qeida MAY attack a petrol tanker.

Bush MAY attack anyone he wants.

IF's and BUT's!!!! So our response to Bird Flu is "we havent got enough medicines and IF it mutates we dont have the antidote. So lets spend the last 5 days putting it on mainstream TV and everyone will forget what a useless sod GB is, and the state of the economy. As per usual the MAIN story about the POSSIBLE recession we are heading for is brushed under the carpet.

THE DEBT IN THIS COUNTRY IS OUT OF CONTROL - THIS SHOULD BE HEADLINE NEWS BECAUSE WE CAN DO SOMETHING ABOUT IT! BIRD FLU WE CANT.

'Que Sera Sera'

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Yer Bugger!!!

Just been reading this on the bog and now youve pi$$ed on me chips :(

In relation to this article. Why is this not being mentioned on national news? The FSA are saying that its scandelous but this Labour Government seems to have a cencorship on the mainstream TV press!

GB has been battered by everyone on his 'false economy' but do we hear about on the 6 O'Clock News?

They seem to find something else to shadow it. Take Bird-Flu for example. Sounds a load of crap to me.

Only 60 people have dies from it world-wide.

It cannot be contracted by humans BUT it MAY be able to mutate.

It is in Turkey but it MAY come to Britain.

It MAY kill from 50,000 to 2Million people.

What a load of scare-mongers.

If China wants it MAY throw some Nukes at us.

Al Qeida MAY attack a petrol tanker.

Bush MAY attack anyone he wants.

IF's and BUT's!!!! So our response to Bird Flu is "we havent got enough medicines and IF it mutates we dont have the antidote. So lets spend the last 5 days putting it on mainstream TV and everyone will forget what a useless sod GB is, and the state of the economy. As per usual the MAIN story about the POSSIBLE recession we are heading for is brushed under the carpet.

THE DEBT IN THIS COUNTRY IS OUT OF CONTROL - THIS SHOULD BE HEADLINE NEWS BECAUSE WE CAN DO SOMETHING ABOUT IT! BIRD FLU WE CANT.

'Que Sera Sera'

Im surprised the article didnt spark up more interest and debate on HPC as I didnt know Charlie had posted a thread on it... and Ive been online most of the weekend. :(

Sorry for the pissy chips. :unsure:

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In some ways it is good that the Banks are lending money to homebuyers as it keeps the housing market alive and that helps to keep the economy afloat. If people cannot pay their mortgage through circumstances beyond their control, it would be a good idea if it was possible to take insurance out to cover your mortgage payments. Oh! You can take insurance out! Then why is it most people are irresponsible and opt out of insurance cover!

- Mark, Bedfordshire, UK

This was a quote on thisismoney - not from someone here.

WHAT A KNOB!!!

He suggests that someone mortgaged to the hilt should then find another £30 a month for an insurance! Whilst sensible in theory it is totally impractical. I hope it goes tits up and when there are mass repossession the banks get stung!!!!!

Liam Neeson where are you when we need you?

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I'm afraid this is the nail in the coffin for the house price crash for me. All the indices are bouncing back, we have a government encouraging property investment, mass shared ownership schemes, tax breaks for property investors, a fast rising population, a gullible general public who think prices only go up, an imminent interest rate cut, and now we have new super loans to pour more fuel on to the fire, I give up.

Edited by simon99

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I'm afraid this is the nail in the coffin for the house price crash for me. All the indices are bouncing back, we have a government encouraging property investment

I wouldn't be so hasty, simon99. The only indicies to "bounce" and by a very small amount are Halifax and Rightmove. but Hometrack continues it's descent.

As has already been said the SIPPs thing won't make any difference to house prices. I'm afraid it is just a case of more patience to let the market take it's natural course.

I do think that IRs have to go up, rather than down though. The inflationary aspect of oil looks like it could be causing IRs to go up around the world, so watch this space...

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What many don't realise is that most of the 'money' in circulation was created as mortgage debt. If everyone knew how damaging this rapid inflation of the money supply is, and it's not just the 'idiots' who borrow these huge sums who are the suckers, there would be mobs outside every highstreet bank.

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I'm afraid this is the nail in the coffin for the house price crash for me. All the indices are bouncing back, we have a government encouraging property investment, mass shared ownership schemes, tax breaks for property investors, a fast rising population, a gullible general public who think prices only go up, an imminent interest rate cut, and now we have new super loans to pour more fuel on to the fire, I give up.

So you're going to BUY??? If you do you are NUTs. Absolutely, stark, raving MAD.

This is getting more insane by the moment - every bubble bursts despite the attempts of the many VIs that try to keep it inflated. The more air it's got in, the bigger the burst.

Patience is needed now. By next Spring - and the next lack of a Spring bounce - the fat will really hit the fire. Or, if there is an IR rise again - just one teensy weensy quarter of a percent will knock all the VIs arguments down.

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Yes! Great idea. I have been a London homeowner since I was 23 years old. Now at the age of 55 an imprisoned tenant, the result of a divorce. This sounds like my last glimmer of hope. Why do people worry about what may or may not happen to others, as far as the housing market is concerned? The recent years have proved that you cannot go wrong as a house owner, even if you wanted to!

- Brando, London, UK

Is he for real? :rolleyes:

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I'm afraid this is the nail in the coffin for the house price crash for me. All the indices are bouncing back, we have a government encouraging property investment, mass shared ownership schemes, tax breaks for property investors, a fast rising population, a gullible general public who think prices only go up, an imminent interest rate cut, and now we have new super loans to pour more fuel on to the fire, I give up.

- The bounce you refer to is a classic dead cat bounce just before the market collapses, see this weeks Money Week for a nice chart of this.

- Browns SIPPS scheme is being panned in the financial press and has more to do with being a tax trap for a few wealthy people than the generous break it first appears. No one trusts Mr Brown these days.

- The population is rising fast because people are living longer not because we are making more people, hence the working age population is shrinking, this bodes badly for long term house prices.

- The public are gullible but media sentiment is on the turn and down the pubs people have stopped bragging about how many flat they own, the public stopped spending last month, just like that.........ominously though although consumer spending collapased MEW actually bounced back up......why? Mass financial distress, the last port of call before declaring yourself bankrupt is to do a final MEW and hope for the best.

- Rates are not going down, 25bp rise expect an increase next spring.

- People cannot afford to borrow anymore, the general public are broke, it doesn't matter how much the lenders will lend, besides with mass mortgage fraud it was already the case that you can borrrow whatever you like.

This is not the nail in the coffin but the beginning of the last crash in UK property prices.

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"Of course if house prices weren't astronomical people wouldn't need to borrow such silly amounts."

If people didn't borrow such silly amounts house prices wouldn't be astronomical.

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I'm afraid this is the nail in the coffin for the house price crash for me. All the indices are bouncing back, we have a government encouraging property investment, mass shared ownership schemes, tax breaks for property investors, a fast rising population, a gullible general public who think prices only go up, an imminent interest rate cut, and now we have new super loans to pour more fuel on to the fire, I give up.

Bouncing back? Not according to this BBC article (and all the news about falling high street sales):

http://news.bbc.co.uk/1/hi/business/4348756.stm

"The problems were plain to see at the time of last year's pre-Budget report in December, but instead of addressing them then, the Treasury chose to dress up the UK finances for the election."

The public have been had!

According to the article Gordon planned HPI:

"He argued that the Chancellor had planned for the property market and consumer spending to keep the UK economy going while the world economy and exports were weak."

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No offence to Dr Bubb whom so many of you slavishly follow, but Ive argued many times that lenders would seek ways to lend more. The total opposite of Dr Bubbs arguments in which he states lending multiples are being tightened.

Its always been clear that lenders will loosen the rules in a contracting market.

They may tighten, but only once a full blown indisputable crash with devastating negative equity is upon us, until then you will see ever more inventive ways to attract business.

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No offence to Dr Bubb whom so many of you slavishly follow, but Ive argued many times that lenders would seek ways to lend more. The total opposite of Dr Bubbs arguments in which he states lending multiples are being tightened.

Its always been clear that lenders will loosen the rules in a contracting market.

They may tighten, but only once a full blown indisputable crash with devastating negative equity is upon us, until then you will see ever more inventive ways to attract business.

yes, as mortgage lending dries up the 6 times salary loans they're offering to young professionals like junior doctors will be rolled out to the whole population assuming fixed 10 year money rates stay reasonably low........The only restriction is that you must take a 10 year (or longer) fix..................to insure yourself against IRs rising at the beginning of the loan.........

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No, I'm not buying, I'll just have to get used to costly renting.

I've been waiting for over 4 years, so am losing patience.

Try waiting 6 years mate, like me.

I had a chance to buy but the only house I could afford back then was a new build next to a piece of land that was planned for affordable housing, after a very long hard think I didn't pursue the purchase, and by christ I'm glad of that - the whole area, once billed a prestigeous development is down the pan.

5 Bedroom detched homes, up for sale because they put the scum of Watford in as the local neighbours.

I'm more convinced then ever that what I'm doing is the right thing, blips or no blips - we're firmly on track.

Hang on in there.

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No offence to Dr Bubb whom so many of you slavishly follow, but Ive argued many times that lenders would seek ways to lend more.

'Ways to lend more' ain't worth crap if people don't borrow. Just ask the Japanese how effective a 0% interest rate policy has been.

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'Ways to lend more' ain't worth crap if people don't borrow. Just ask the Japanese how effective a 0% interest rate policy has been.

absolutely spot-on.

in fact "new ways to lend" really means desperate squabble for custom,with reduced profit margins for the banks.

the banks would rather have a clean break so they can start the ramp-up again quicker....long drawn out slowdowns are NOT in their interest one bit.

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  • 302 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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