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TheCountOfNowhere

Is A Htb Mortgage Equivalent To A Nr 120% Mortgage ?

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We all saw the carnage of the NR 120% mortgage in 2007/2008.

I was thinking last night, the governments HTB mortgages are no better.

At the beginning of 2013 prices were still down 10% on the land registry from the destructive 2007 bubble prices.

With HTB/HTB2 and FLS we are seeing an artificially supporting increase in prices.

If we say the normal level for prices with interest rates at 0.5 is X

then the government push up prices to x + 20% with their artificial props/schemes then effectively they are lending money at a price that is 20% above anything anyone is willing to pay with their own money.

it strikes me, what we have is 120% mortgages backed by the government and being used to try and get the housing market level back to the level it collapsed when it was supported by 120% mortgages.

This is crazy, if you ask me, does anyone actually think this is sustainable ?

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not the same as 125% mortgages as the total loan does not go above the sale price.

The leverage ratio is the important thing here, although I am told that under sensible lending rules, the equity loan in HTB1 must be accounted for in the affordability calculations.

They must assume that peoples salaries are going to increase and that at five years into a scheme, a young couple are still going to have two incomes...and that interest rates stay low...even though real rates have been rising for some time.

Edited by Bloo Loo

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not the same as 125% mortgages as the total loan does not go above the sale price.

I'm not saying, they are 120% mortgages, just that they seem to me to be the equivalent of.

As far as the banks are concerned the actual value of the house is still "X" as the government are covering the rest and the idiot buyer giving them their 5% deposit, they have created a false purchase price, much like the new build type gifted deposit, that effectively pretends the sale price is higher than it is.

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I'm not saying, they are 120% mortgages, just that they seem to me to be the equivalent of.

As far as the banks are concerned the actual value of the house is still "X" as the government are covering the rest and the idiot buyer giving them their 5% deposit, they have created a false purchase price, much like the new build type gifted deposit, that effectively pretends the sale price is higher than it is.

I understand what you are saying, but I think it has a different effect.

125% didnt put the price up...they based the 125% on a valuation.

HTB1 takes the ability to pay and then values the house...based on what the mortgage brokers can attain. Of course, 125% mortgages werent 125%...they were 100% or less with an unsecured portion for buying stuff.

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I understand what you are saying, but I think it has a different effect.

125% didnt put the price up...they based the 125% on a valuation.

HTB1 takes the ability to pay and then values the house...based on what the mortgage brokers can attain. Of course, 125% mortgages werent 125%...they were 100% or less with an unsecured portion for buying stuff.

if the banks are expect to get 2 years worth of interest, sell of lots of their own stock at silly prices and then repo the dross and sell off at 20% less than the mugs buying now, then their "valuation" is 20% less than the money being lent.

Either way this scheme is a nasty thing for the general public.

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if the banks are expect to get 2 years worth of interest, sell of lots of their own stock at silly prices and then repo the dross and sell off at 20% less than the mugs buying now, then their "valuation" is 20% less than the money being lent.

Either way this scheme is a nasty thing for the general public.

yes it is..add 5% to a persons spending power and they are likely to spend it.

take that 5% away next year and the next person has to find that 5% in order to spend it..result...instant 5% drop in persons spending power...and therefore, on average, selling price.

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yes it is..add 5% to a persons spending power and they are likely to spend it.

take that 5% away next year and the next person has to find that 5% in order to spend it..result...instant 5% drop in persons spending power...and therefore, on average, selling price.

It certainly looks like the housing market is rigged, the government and the boe need to be separated from what should be a free market.

Maybe we're all wrong and this is a great thing for the country.

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It always makes me cringe when I hear politicians say they are helping first time buyers… it goes something like this

"They can afford the mortgage, they can afford the repayments but they just can't afford the deposit so we are helping with that, the right thing to do etc etc"

That's called not being able to afford the house. Anyone can afford anything if you reduce the price by the amount required to make repayments at emergency low interest rates affordable for them. Let's call that amount 'the deposit' and deduct it from the total and put it in some column over here somewhere. Oh yes they have to repay that bit as well but not for a couple of years. Solved !

Id like to spend 200k on a super car. Problem is I can only 'afford' 200 pounds a month. Tell you what, lend me 190k, forget about that for now, thats 'the deposit', now I've got 10k to borrow. Now its affordable. Genius

The amount of this deposit indicates the amount by which the houses are overvalued, even at these emergency borrowing costs. Its not sustainable, but the question is for how long can it be sustained..? And how long can you wait?

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We mortgaged a large 2 bed flat (2004) for £145k (Were 4 years away from paying it off in full). Peak was around October 2007 ..... £177k.

However next door is selling for £199k, I would guess about 4-5 views each week atm.

In 2007 there was a massive influx of retired BTL investors, due to saving rates I guess.

Without a doubt this is a disaster for the young. Market hit by retiree's at the housing entry point along with savy BTL + price bounces after HTB by £20k. And on top of this I personally am not going to move out to buy a bigger place for an extra £100k. The whole situation has nothing to do with helping the young, or the serfs for that matter.

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In 2007 there was a massive influx of retired BTL investors, due to saving rates I guess.

Without a doubt this is a disaster for the young.

Without a doubt this is a disaster for the young retired BTL investors.

I've corrected that for you.

This who thing is about the saving the banks.

The banks NEED prices to be at 2007 peak so they look solvent.

What the banks need they seem to get, no matter what.

However, they are only so many greatest fools and at some point the banks will have bleed enough people dry and they they will start their own recovery, so being in debt to them at that point is most likely a disaster if you can;t afford the repayments.

Edited by TheCountOfNowhere

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not the same as 125% mortgages as the total loan does not go above the sale price.

The leverage ratio is the important thing here, although I am told that under sensible lending rules, the equity loan in HTB1 must be accounted for in the affordability calculations.

They must assume that peoples salaries are going to increase and that at five years into a scheme, a young couple are still going to have two incomes...and that interest rates stay low...even though real rates have been rising for some time.

But the new build sale price is ABOVE their resale value - so negative equity built in.

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But the new build sale price is ABOVE their resale value - so negative equity built in.

HTB is atrocious - a slap for those who have tried to save for a deposit, and, as stated, an attempt to prop up house prices. But it's not the same as a 125% mortgage (**) as the buyer gets no cash. All that happens is that the taxpayer takes the "deposit" risk: if prices fall/sale on repo etc the bank can claim the 25% HTB portion from the Gov.

Even more incentive to keep HPI...

(**) 125% was called a Buy-to-Gamble mortgage. Borrow £250k for a £200k flat. Buy the flat and fly to Vegas, put the extar £50K on Red, twice. If you get 2 Reds you can pay off the mortgage, if not take a personal bankruptcy)

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HTB is atrocious - a slap for those who have tried to save for a deposit, and, as stated, an attempt to prop up house prices. But it's not the same as a 125% mortgage (**) as the buyer gets no cash. All that happens is that the taxpayer takes the "deposit" risk: if prices fall/sale on repo etc the bank can claim the 25% HTB portion from the Gov.

Even more incentive to keep HPI...

I'd say that HTB makes it imperative for the government that house prices keep rising. (Of course, since they depend on a continuously inflating money supply and mortgages are a massive contributor to that money supply, HPI was pretty 'essential' already.)

(**) 125% was called a Buy-to-Gamble mortgage. Borrow £250k for a £200k flat. Buy the flat and fly to Vegas, put the extar £50K on Red, twice. If you get 2 Reds you can pay off the mortgage, if not take a personal bankruptcy)

HTB represents the Government taking the gamble - with our money of course - not the borrower (as was the case of 125% mortgages) since the banks aren't willing to take the risk on crazy lending any more.

This of course encourages the Govt to keep 'doubling down' on HPI as they put more and more skin directly in the game (via guarantees on repayment of the mortgage). They just have to throw more and more at pushing the price of the roof over your head into the unbelievably unaffordable region.

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But the new build sale price is ABOVE their resale value - so negative equity built in.

exactly the point I was making...unless, HTB1 is there for the next buyers...HTB2 is entirely different.

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I made this point a while ago. High deposits required because of the future risk presented by over-priced houses. In the days of 125% mortgages that risk was ignored. In both cases more money is being lent / borrowed than is wise or sustainable.

It will (probably) end in tears, though who knows what they will do to blur the reality.

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No a 120% ltv loan is not the same as a 75% ltv loan which is what the HTB one is effectively...

Also once the government owns all this mezz debt do you all really think house prices will be allowed to fall...?

This is the bus which is leaving the station now... There might not be another till the 2020s...

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No a 120% ltv loan is not the same as a 75% ltv loan which is what the HTB one is effectively...

Also once the government owns all this mezz debt do you all really think house prices will be allowed to fall...?

This is the bus which is leaving the station now... There might not be another till the 2020s...

It's not a bus it's a train, all we need now are some leaves on the track...

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No a 120% ltv loan is not the same as a 75% ltv loan which is what the HTB one is effectively...

Also once the government owns all this mezz debt do you all really think house prices will be allowed to fall...?

This is the bus which is leaving the station now... There might not be another till the 2020s...

You are suggesting that we should all pile on the bus now??

Agree with OP's theory.

120% LTV on 100k house........................ > House worth 100k or less..........................Debt 120k......... (20k cash wasted on non value added)

HTB1 on 120k overvalued newbuild ........> House worth 100k or less...........................Debt 120k......... (20k unaffordable time bomb)

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You are suggesting that we should all pile on the bus now??

Agree with OP's theory.

120% LTV on 100k house........................ > House worth 100k or less..........................Debt 120k......... (20k cash wasted on non value added)

HTB1 on 120k overvalued newbuild ........> House worth 100k or less...........................Debt 120k......... (20k unaffordable time bomb)

the difference is the book equity.

Take a drop of 10% on a HTB 1 house and the buyer loses all is cash, and the Government is liable for 25% of theirs. the bank loses no equity.

Take a 10% drop on a 125% mortgage, the buyer loses nothing the bank now has 38% ish unsecured and the rest secured.

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Take a 10% drop on a 125% mortgage, the buyer loses nothing the bank now has 38% ish unsecured and the rest secured.

That';s how it should have worked in theory...but in practice it was " the Government is liable for 38% ish. the bank loses no "

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That';s how it should have worked in theory...but in practice it was " the Government is liable for 38% ish. the bank loses no "

the Government chose to take on and guarantee the losses.

In the case of HTB 1, they chose to take on the mortgage directly...and free too for the first five years.

In HTB2 they take no liability save what the bank (customer) pays for.

In theory, a client who wants any size mortgage could choose to pay an extra fee for anthything over and above their market borrowing capability....so broken is the link between risk and borrowing costs these days.

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the Government chose to take on and guarantee the losses.

In the case of HTB 1, they chose to take on the mortgage directly...and free too for the first five years.

In HTB2 they take no liability save what the bank (customer) pays for.

In theory, a client who wants any size mortgage could choose to pay an extra fee for anthything over and above their market borrowing capability....so broken is the link between risk and borrowing costs these days.

I agree.

So as per my original point...what we effectively have is the equivalent of the NR 120% mortgages, they are in reality pushing up prices ( albeit in much lower volumes ) to 2007 levels. Hence why we are seeing this "return to normal".

The big question is....what will be the major event that stop this lunacy in it's track!!!!

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I agree.

So as per my original point...what we effectively have is the equivalent of the NR 120% mortgages, they are in reality pushing up prices ( albeit in much lower volumes ) to 2007 levels. Hence why we are seeing this "return to normal".

The big question is....what will be the major event that stop this lunacy in it's track!!!!

i dont think 125% mortgages pushed up prices in themselves, as they could only mortgage 100% of the value. the rest was like a credit card, which anyone with whatever mortgage could get regardless of their house valuation....it was just an add on sale of credit.

What pushed up prices was that anyone could get 100% mortgages with LIAR LOANS and they didnt bother to check they werent LIAR LOANS.

NR took advantage of this and was one of hundreds of mortgage entities producing product for securitisation.

There is no doubt that the aim of HTB1 and 2 is to prop prices/banks..

In my conclusion, then I agree the trend is to try to push up prices, but I dont think 125% were the cause de force of the 2007 rise and fall, although they were part of it..and not necessarily a major part.

Edited by Bloo Loo

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