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New Buyers Now Being "stress Tested" For Ir Rises

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http://www.dailymail.co.uk/news/article-2538917/A-mortgage-Only-cope-rate-rise-Potential-buyers-stress-tested-lenders-major-crackdown.html

Mortgage lending giants are banning potential borrowers from taking loans unless they can show they will still be able to afford them when interest rates rise.

Under a major crackdown, lenders must ‘stress test’ a homebuyer to see if they will be able to afford potentially higher monthly costs. The move – coupled with extensive checks on borrowers’ day-to-day finances and spending – raises the prospect of families being turned down for loans even if their cost in repayments never rises as high as their lender predicts.

The new guidelines, based on the Mortgage Market Review outlined by the City regulator, don’t kick in officially until April 26. But last night it emerged they are already being followed by most of the country’s big lenders. David Hollingworth, from mortgage advisers London & Country, said: ‘It is not impossible to get a mortgage.

But lenders are running the rule over people’s budgets much more closely.’ Mortgages have never been cheaper since the Bank of England cut the base rate to 0.5 per cent nearly five years ago, the lowest level in its 320-year history.

But the base rate will inevitably rise and regulator the Financial Conduct Authority insists loans must not be handed out if a bigger mortgage bill could break a family’s finances. Typically, banks and building societies are stress testing on the basis of mortgage rates hitting 7 per cent in the next five years.

Other changes mean a bank or building society must do a much more forensic investigation of a borrower’s finances. It is a dramatic change from the days when a bank simply handed out four times a person’s salary, or three times a couple’s joint salary, and made few checks on their finances.

Under the new system, a lender wants to know everything about your finances from how much you earn and how much you spend on food and utility bills every month, to the size of your debts. Mr Hollingworth said one borrower was even penalised for playing the National Lottery every month after the bank spotted a large direct debit on his bank statements.

A couple with two pre-school children could also be lent less than a couple whose two children go to school, despite having the same household income. This is because the bank knows the couple with pre-school children will typically face higher childcare costs.

The rules throw up other controversial scenarios according to Ray Boulger, senior technical manager at the mortgage advisers John Charcol.

For example a childless married couple with only one earner, on £60,000, would generally be able to borrow less than a similar couple with two earners on £30,000 each. This is because the bank estimates there is a higher risk of the single earner losing his or her job, than both earners simultaneously losing theirs.

Mr Hollingworth said the forensic checks by lenders mean the time taken to get a loan has almost doubled from a couple of weeks, before the credit crunch, to four weeks today. The rules set by the FCA say a lender must assess a mortgage’s affordability over the five years after the loan is made. A bank can take its own view on interest rates, but must be able to justify it. At present, the market expects the Bank base rate will be 3 per cent in five years.

article-0-1AA3EDB600000578-134_634x401.jpg

Only 7%...

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That stress testing will be as vigilant and rigorous as the stress testing of the incompetent and corrupt banking system itself. The next terrifying economic collapse looms.

Edited by billybong

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This is good, if true; tougher stress testing on borrowers, who have for years been all too eager to set newer higher prices.

DM put the story quite high in today's page positioning too. Take note owners... going fewer buyers able to meet the values you think your homes are worth.

Might trigger some supply to market, and rather than the multi-year lows of houses for sale on market now. Many of which holding out for stupid asking prices, and sellers convinced can hold out until they get a buyer who will surrender.

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From my dupe post:

Its the Mail:

http://www.dailymail...-crackdown.html

Basically, stress test for 7% IRs.

I've seen a comment in a number of places, here included, that part of Carney's plan is some sort is mortgage rationing.

If this is true then HTB stuff is nothing more than a bit of ineffective sugar.

Only the unencumbered, under-leveraged and solvent need apply.

On a side note, in my circle of friends I've not heard of any taking a new mortgage on.

Hardly suprising as most have mortgages that they cannot afford. Im outside of London by the way.

The only house exchange I know of is someone how exchange a nice but small 1.5 bed house for a dirty old man's probate house which offered an extra bedroom and more space. They jumped through hoops to transfer their existing mortgage - which they can longer afford - hours cut, etc.

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'At present, the market expects the Bank base rate will be 3 per cent in five years.'

So the BoE expects a typical mortgage funding spread to be ~4% then.

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Many of which holding out for stupid asking prices, and sellers convinced can hold out until they get a buyer who will surrender.

Indeed. I'd point you to my posts in the Yorkshire board.

The local housing market is flooded with empty probate sales.

Scarborough's market in particular appears to have a market where the time-to-sell exceeds the seller's life expectancy.

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Love that table, how many different ways of saying "a £100k loan repayment will be £707/month" can the Mail find?

Should hopefully keep pressure on sales volumes.

And who is getting 100K loan?>..I gather the average new loan is nearer £140K..I know personally severall young couples who have MUCH larger loans than that...you see, banks, even very recently, allow affordability criteria...hence the need for stress tests.

Its not about income multiples, deposits and sensible lending...its STILL about lending as much as the borrower can be seen to safely afford, whether they hide the LIES or NOT.

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What about existing borrowers how many of them could survive a IR of 7%? Especially as some people are down to their last £20.

That's 7% IR PLUS a repayment plan.

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From my experience the banks and building soc's have been doing this analysis for years. Best pile in now before the rules tighten? It is the Mail though. They even got a few mortgage professionals to chip in.

Edit: the article does concede that most lenders are following these guidelines already.

Edited by Ash4781

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Good in theory, though I don't believe that lenders would be voluntarily turning away business by following the new rules before the April start date.

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Love that table, how many different ways of saying "a £100k loan repayment will be £707/month" can the Mail find?

Should hopefully keep pressure on sales volumes.

They haven't included BTL mortgages. These people do need the figures spelled out for them IMHO.

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Of course, anyone taking a HTB mortgage right now also needs to be able to repay 20% of the value of the house within five years or have that start accruing compound interest too...

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From my experience the banks and building soc's have been doing this analysis for years. Best pile in now before the rules tighten? It is the Mail though. They even got a few mortgage professionals to chip in.

Edit: the article does concede that most lenders are following these guidelines already.

Lenders always were...officially...but ways and means meant that using an intermediary meant they could wash their hands of the checks.

Today, their very best lawyers will be finding words that will allow them to maximise their own sales, profits and bonuses.

In other words, little has changed?

If it had, we would be seeing houses at affordable prices...we arent.

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"Love that table, how many different ways of saying "a £100k loan repayment will be £707/month" can the Mail find?"

Love that table, how many different ways of saying "LOOK HOW CHEAP IT IS TO BORROW 100K" - More subliminal messaging/propaganda.

It sounds to me they are trying to talk down the nu-bubble so it's more sustainable without actual doing anything about it.

Judge them on that they say DO.

Got this in my inbox today from Shawbrook bank:

"With effect from close of business on Wednesday 15th January, we will be withdrawing from sale the 1 Year Fixed Rate Bond Issue 13 paying 1.95% and 2 Year Fixed Rate Bond Issue 13 paying 2.40%.

From Thursday 16th January, these will be replaced with a 1 Year Fixed Rate Bond Issue 14 paying 1.75% and a 2 Year Fixed Rate Bond Issue 14 paying 2.30%."

Doesn't look like rates are going up this week.....

Edited by TheCountOfNowhere

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I'm not disappointed with Carney.

He's doing about as much as possible within parameters he's got.

The banks know the days of an annual MEW windfall are over which is what a lot of people where stretching themselves with mortgages for - so salary multiples now matter a lot more than they did.

The boomers now hold the assets with no debt, there are two generations of renters who want a house of their own.

You can see a scenario where BOE caps lending limits forcing property prices down, whilst at the same time pumping HTB type funding in to generation rent.

What follows is a rotation from boomer owned assets to new lending for Gen X/Y which generates 'GDP' - but without the normal 10% HPI.

We could even see transactions ramping up, whilst prices tick down.

It only works if they keep salary leverage under control.

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"Love that table, how many different ways of saying "a £100k loan repayment will be £707/month" can the Mail find?"

Love that table, how many different ways of saying "LOOK HOW CHEAP IT IS TO BORROW 100K" - More subliminal messaging/propaganda.

It sounds to me they are trying to talk down the nu-bubble so it's more sustainable without actual doing anything about it.

Judge them on that they say DO.

Yes.I tried to open a new thread about lenders relaxing the mortgage criteria (Daily mail article), a few days ago. but moderators did not put it on.It was also yesterday the same news about FTSE gaining because of the above,hence banks shares are "valued" more as the consequence.

Everything in the media is contradictory and stupid.

The system forces us into debt slavery, and always p****s on us with these stupid,self conflicting "news" and rules and laws,...

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They won't have the same rules because they are 'professionals'.

Yes, this is the weird way the banks will see it - they are being forced to protect customers from themselves...not the new rules protecting the banks from themselves.

And protecting customers too from the continuing appalling ramping perhaps ....

Carney warning people to make sure they could afford the mortgage they would be taking on because the government will not bail out people in the future did get reported but reported in the midst of newspapers etc still SHOUTING LOUDLY - HOUSE PRICES TO GO UP 25% BY 2018!! Or something equally ridiculous.

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And protecting customers too from the continuing appalling ramping perhaps ....

Carney warning people to make sure they could afford the mortgage they would be taking on because the government will not bail out people in the future did get reported but reported in the midst of newspapers etc still SHOUTING LOUDLY - HOUSE PRICES TO GO UP 25% BY 2018!! Or something equally ridiculous.

I meant to say but pressed Add Reply instead of Preview and I am not allowed to edit, that I also get your point about the remarkable way the banks see this "not my fault guv its all those crazy buyers asking me to lend them 10x's their income and begging me for Interest Only mortgages" now we must try to protect these crazy buyers from themselves. What did someone say to me yesterday, its all doublespeak innit! All mixed messages but messages that perhaps are just not now having the same effect as they would have just a few short years ago because interest rates can now only go up and perhaps, maybe, house prices can only really come down if the market is going to get moving rather than just stagnate...either way I wonder how any of this is really going to help the election plan!

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Good. This stress testing makes sense. On the other hand, if they actually *did* raise interest rates to 7% in the next 5 years, it's gonna get FUN for the unleveraged :)

I think BruceBanner would throw a party!

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Under the new system, a lender wants to know everything about your finances from how much you earn and how much you spend on food and utility bills every month, to the size of your debts. Mr Hollingworth said one borrower was even penalised for playing the National Lottery every month after the bank spotted a large direct debit on his bank statements.

All the more reason for keeping your expenditure well away from your bank a/c and use cash wherever possible.

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It's not all bad news...

Jonathan Eley (@JonathanEley) tweeted at 10:35 am on Tue, Jan 14, 2014:

You know that "downvaluations" are becoming a problem when FT colleagues start asking about them #property #mortgages

(

)
Jonathan Eley (@JonathanEley) tweeted at 10:44 am on Tue, Jan 14, 2014:

If you're a victim of "downvaluation" (where surveyor valuation < your offer) read this: http://t.co/W2Onx0PSWV

(

)
Edited by 7 Year Itch

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