If/when Prices Fall - How Easy Will It Be To Borrow Money?

[A late entrance..]

Just a thought from a FTB - we are already establishing budgets based upon the current easy lending practices. In the event of the economy/housing market slowing or crashing, how easy will it be to obtain a mortgage? (on the assumption that I won't be laid off!)

[karhu]

Just a thought from a FTB - we are already establishing budgets based upon the current easy lending practices. In the event of the economy/housing market slowing or crashing, how easy will it be to obtain a mortgage? (on the assumption that I won't be laid off!)

On a scale 0-10, I'd say 0.5/10.

Edited November 1, 2005 by karhu

[A late entrance..]

On a scale 0-10, I'd say 0.5/10.

Riiiight, any experience from previous crashes?

I'll expand the question a little - will the previously strict 3x (or less!) single salary only come back into force?

Would it be unwise to change employers and risk doubts about job stability?

How likely is it, do you feel, that FTB's will not be much better off than right now given extra difficulties in borrowing?

[Goat]

Riiiight, any experience from previous crashes?

I'll expand the question a little - will the previously strict 3x (or less!) single salary only come back into force?

Would it be unwise to change employers and risk doubts about job stability?

How likely is it, do you feel, that FTB's will not be much better off than right now given extra difficulties in borrowing?

No direct experience from earlier crashed however my guess is that in a falling market the lenders will be more interested in the size of deposits rather than income multiples.

The key from a banks point of view is to avoid bad debts. Their losses will come from mortgages with negative equity, the higher the percentage of the purchase price lent, the greater the scope for NE.

[A late entrance..]

Ok, so the end of 100% mortgages during any downturn then - and some incentive to save harder now! Any more anecdotes from others?

[dogbox]

Riiiight, any experience from previous crashes?

Bought my first place in 1991 when the slump was in full - force.

Lenders were falling over themselves to lend in a quiet market so I had no problems getting 95% (100% was available with Nat West and others).

Higher multiples can always be found or you do what I did and beg my boss to over - egg my earnings on the reference he wrote.

Lenders are business's and above all need to keep lending. In the end the last reccesion was terible yet hardly anyone I know lost any money, they just rode it out or sold for less and bought for less, no big deal.

Ok, so the end of 100% mortgages during any downturn then - and some incentive to save harder now! Any more anecdotes from others?

Thats incorrect. Not only were there a few 100% offerings thrust in my direction by E/As in 1991, there were also 'negative - equity' schemes. Nationwide allowed my uncle to transfer his neg - eq mortgage when he moved!

Human spirit usually over - comes. Dont let the mega - bears grind you down, it can be a life - long affliction.

In 30 years they will still be predicitng chaos on the back of the multitude of bad news stories.

Bad news is ever present. Worry is ever present. How your brain processes this information determines whether or not you will be a life - long bear.

Look back at newspapers from 5 years ago - much the same as now.

[verolution]

Think about this logically, if we do have a crash and banks won't lend anyone money, then house prices will fall through the floor and readjust to a point where you don't need a mortgage to buy one.

Personally i think the banks are clever enough to realise that not lending anyone money would just make the situation worse, however the days of Northern *ock offering 10x salary 115% self certs would be a distant memory.

[Without_a_Paddle]

I had no trouble as a FTBer in the mid nineties.

I bought in the dip, and got 1.8% off the variable rate for two years with £1500 cashback.

Banks and BSoc were extremely keen to lend money.

[Brian Potter]

Bought my first house in 1995. 100% mortgage. Myself and partner only been working for 6 months after redundancy in early ninties and return to education.

Had no trouble whatsoever. We stayed well within our available limit and had a discounted rate for first two years.

Never looked back - bought in 1995 at bottom of market and moved up in 2002 just before insanity set in. No super decision on our part - just fluke.

Would not dream of buying at the moment. It will come back to reality and when it does buy only within the boundaries of what you can afford plus a little contingency. Remember Mr Macawber!

[Starcrossed]

I don't think it will be difficult.

Houses will be cheaper eventually and this will more than make up for any possible future change in lending practices.

The theory that it will be difficult to buy when everybody is telling you it is a bad idea to do so may well be true, though. The barrier may not be financial, it could be psychological.

Having said that, I was a FTB in 1995 and don't remember feeling this psychological pressure at the time. It may be that those that have lived through a crash would be burnt by the experience and young FTB's will be needed to kickstart the market again. Therefore buying at the top of the market could be a bit of a 'double-whammy'.

[A late entrance..]

Many thanks for all the feedback, I think it's best for me to wait now regardless of where the market goes - as long as it doesn't go up then I'll still be able to buy in without overstretching myself above 3.5x salary.

Mr Macawber is a fine example of the modern day borrower! (though it's harder to bugger off to Aus now LOL)

[oracle]

....in a nutshell......a complete nightmare.

....the banks by then will be so risk averse they will not lend unless you have a concrete job in the government and a 20%+ DEPOSIT.

.....that's in addition for working for the government 2 years or over.

...that's pretty much what happaned last time...but without so much govt stuff......you had to have quite a long track record of employment and virtuallt no debt before you wer able to borrow even 3.5*

[AgeingBabyBoomer]

From what I can remember, those who had large NE were not simply

allowed to pay off their oversized loans, and sit it out till things

got brighter.

The banks/building societies chased them to pay off the shortfall on

their debt as it arose - presumably they wanted to be covered incase

they died or something.

For sure, people in NE were nto allowed to trade up, until the matter

had ben 'resolved'

ABB

[Marina]

My memories of this are different from dogbox's.

First I recall that multiples were generally tightened.

But the biggest problem was that properties were regularly 'under' valued by the building society surveyors. They like everyone else chased the market down. Then, like now, people just could not countenance say a 30% reduction in house prices. They kidded themselves the market can never go down much but, to be on the safe side, lenders told their surveyors to be cautious - to err on the side of under valuation rather than over valuation (which they tend not to care about in a rising market.)

If you had a big deposit you could deal with this - if you were after a 95% mortgage it became a sticking point.

The simple fact is - as a general rule (there will be exceptions) in a rising market money is fast and loose - in a falling market - money is harder to get hold of.

Also, I seem to remember it was years before a method was devised of transferring negative equity forward to your next purchase. It took a while for lenders to dream up a scheme that meant a house sale could be technically completed without the funds to redeem the mortgage. Lots of people got stuck in negative equity for years and, even though their salary might have gone up enough for them to take on a bigger mortgage and move on, they simply could not do it.

Edited November 1, 2005 by Marina

[a j]

From what I can remember, those who had large NE were not simply

allowed to pay off their oversized loans, and sit it out till things

got brighter.

The banks/building societies chased them to pay off the shortfall on

their debt as it arose - presumably they wanted to be covered incase

they died or something.

For sure, people in NE were nto allowed to trade up, until the matter

had ben 'resolved'

ABB

I remember countless TV programmes about this - people stuck in pokey one bed flats who couldn't sell and couldn't pay off the negative equity in order to move. Deperate stuff for those trying to start a family. I'm often frustrated with renting, but thinking back to those stories I realise the alternative can be a lot worse.

[FaTB]

Can't see it being much of an issue for most on this forum.

FTB'rs - saved big deposit, I want to have at least 50% when I buy.

STR'rs - Massive deposits from profit taking at peak, and compounded interest.

Not much of a risk for the banks, cos we'll never be in negative equity.

SIT TIGHT, KEEP SAVING.