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Mortgage Cap At 4.5 X Salary

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Is this a 'household' salary rule, meaning it is miles away from the 3.5x main earner+ 1x 2nd earner sustanable average.

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Absolutely, because both earners are stably employed full time their whole careers, with no redundancy or maternity leave existing.

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Affordability is checked and mortgages are stress tested to +3%.

If you both earn £100k a year (I wish) and then take home £10k new per month inc. student loan you would be allowed to borrow £900k - fairly unrealistic outside London.

Now lets say you had 10% deposit you could afford a 3 bed million pound semi. Assuming in London (on kids short commute), expenses would come in at around £3k per month for a couple. this would leave £7k per month for repayments on a £900k mortgage. Inital repayments at a teaser rate of just 4% would come in at around £4,746 25yr repayment. Even stress testing this comes to 6435.78 at 7% leaving just £500 per month disposable income.

A more realstic situation would involve kids and 1/2 earnings from one partner and would make this totally unaffordable.

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Absolutely, because both earners are stably employed full time their whole careers, with no redundancy or maternity leave existing.

That's what the government are stipulating via these rules.

We don't need kids as we can import immigrants from the EU.

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Is this a 'household' salary rule, meaning it is miles away from the 3.5x main earner+ 1x 2nd earner sustanable average.

I remember when I took my first mortgage of £50k in 1996 with an ex-girlfriend, rules accross the board then where 3.5 x main + 1 x secondary or 2.5 x joint. Whichever was higher was the limit.

£50k was under on both as I was on 18.5k and she was on £13k. Happy days back then when your first house was a early 80's 2 bed semi with a 3 car drive and Garden in the SE for £55k!!

M

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If you didn't know, you are one of the people today's "limit" announcement was aimed at.

You are now supposed to rush out for a 4.5x household income mortgage but if the house you want needs even more credit, you can beg to be in the 15% who borrow even more.

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I remember when I took my first mortgage of £50k in 1996 with an ex-girlfriend, rules accross the board then where 3.5 x main + 1 x secondary or 2.5 x joint. Whichever was higher was the limit.

£50k was under on both as I was on 18.5k and she was on £13k. Happy days back then when your first house was a early 80's 2 bed semi with a 3 car drive and Garden in the SE for £55k!!

M

Crazy, isnt it? That was only 18 years ago and we are in a completely different world now. I guess that same house would be £250k+, but the equivalent salaries are probably £25k and £18k giving an upper limit of £107k for people in that position now.

I suppose the 4.5x joint announcement today bridges a lot of the gap allowing them to borrow almost £200k and the base rate at 0.5% compared to 6% when you bought helps with the affordability. Doesn't look good for the longer term does it?

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Crazy, isnt it? That was only 18 years ago and we are in a completely different world now. I guess that same house would be £250k+, but the equivalent salaries are probably £25k and £18k giving an upper limit of £107k for people in that position now.

I suppose the 4.5x joint announcement today bridges a lot of the gap allowing them to borrow almost £200k and the base rate at 0.5% compared to 6% when you bought helps with the affordability. Doesn't look good for the longer term does it?

yeah, but, money was so much more valuable in those days.

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Crazy, isnt it? That was only 18 years ago and we are in a completely different world now. I guess that same house would be £250k+, but the equivalent salaries are probably £25k and £18k giving an upper limit of £107k for people in that position now.

I suppose the 4.5x joint announcement today bridges a lot of the gap allowing them to borrow almost £200k and the base rate at 0.5% compared to 6% when you bought helps with the affordability. Doesn't look good for the longer term does it?

Not quite £250k, I sold it for £194k in 2007 and that owner sold it for £176k last year. But still yep I think it was 6.5% APR on a Halifax 1st time buyer PEP mortgage with a 5 year tie in a £2.5k cashback. And I remember rates hitting 7.8% at one point during those five years.

Any FTB taking on that now with 0.5% base rates will be sunk if they return to 5% +. I pray for a reset for my young kids!!!

M

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...some of the highest earners have taken on the biggest mortgage debt.....they need /are tied into their jobs more than the rest, at least the lower earners have more work/job choices and often better work life balances.....the higher you are the harder you fall. ;)

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Not quite £250k, I sold it for £194k in 2007 and that owner sold it for £176k last year. But still yep I think it was 6.5% APR on a Halifax 1st time buyer PEP mortgage with a 5 year tie in a £2.5k cashback. And I remember rates hitting 7.8% at one point during those five years.

Any FTB taking on that now with 0.5% base rates will be sunk if they return to 5% +. I pray for a reset for my young kids!!!

M

Still might be £250k depending on where it is! The BBC report this morning showed a house that had gone up from £330k to £500k in just 8 months!

Seriously though, it is the same problem, people borrowing too much to buy houses that were quite a lot easier to afford in the 90s and using lax lending and low interest rates to manage it.

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If you didn't know, you are one of the people today's "limit" announcement was aimed at.

You are now supposed to rush out for a 4.5x household income mortgage but if the house you want needs even more credit, you can beg to be in the 15% who borrow even more.

This joint vs single sleight-of-hand was first identified by you IIRC. And yes, currently only 1 in 10 of mortgages are considered 'risky' by the BoE, so Carney's going to make things even more secure by putting that number up to 15%. :rolleyes:

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...some of the highest earners have taken on the biggest mortgage debt.....they need /are tied into their jobs more than the rest, at least the lower earners have more work/job choices and often better work life balances.....the higher you are the harder you fall. ;)

Indeed, and a replacement job at the same level is much harder to find at £250k than it is at £50k.

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This joint vs single sleight-of-hand was first identified by you IIRC. And yes, currently only 1 in 10 of mortgages are considered 'risky' by the BoE, so Carney's going to make things even more secure by putting that number up to 15%. :rolleyes:

Worse than that. Since it's a ratio, so long as the 85% < 4.5x in the loan book are increasing then the 15% > 4.5x can increase as well.

So there's an incentive for a bank to increase its < 4.5x book (within overall capital constraints of course).

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Does it override this, or are other lenders just so welcoming to take on such jumbo mortgage business?

State-backed lenders Lloyds Banking Group and the Royal Bank of Scotland have already limited mortgage lending on loans above £500,000 in a bid to cool the London market.

Just a few months ago I seem to recall Carney saying something along the lines of powerless to do much about London prices, given the number of cash buyers.

Stamp duty and other tax changes may be a dampener on that - together with not all of them true cash buyers.

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I am now fairly used to terrible housing policies, but I am amazed that this is being presented as a measure to cool the housing market. Is it definitely 'capped' at 2x JOINT salary?

The only confirmation I found in a quick search online is from one Jonathan Davis, so I am slightly sceptical: http://www.mindfulmoney.co.uk/wp/jonathan-davis/carneyge-on-house-market/

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That's great but my real fear multiples increased upwards over the last year or so in response to higher asking prices from greedy investors/owner occupiers, and are not the actual driver of the boom itself. Can quite easily see owners pulling properties off the market/renting them out if they can't get the prices they want.

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That's great but my real fear multiples increased upwards over the last year or so in response to higher asking prices from greedy investors/owner occupiers, and are not the actual driver of the boom itself. Can quite easily see owners pulling properties off the market/renting them out if they can't get the prices they want.

Of course they will. Doesn't matter though as prices are set at the margins and there will be enough sellers willing/having to drop their price which will bring prices down regardless.

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Can quite easily see owners pulling properties off the market/renting them out if they can't get the prices they want.

Fine, the longer they wait the less they'll get. In the meantime any increase in supply of rentals decreases rents too.

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Does anyone have any link to an official description of how the 'affordability cap' actually works?

What percentage of your net household income is defined as an affordable amount to spend on the mortgage?

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Just watched channel 4 news and it seems theyll be happy if prices rise by a mere 20% in 3 years, this is the slowdown theyre looking for.

I hate Carney as much as i despise Gidiot.

Here this confirms the 20% inflation of this bubble

http://www.theguardian.com/business/2014/jun/26/bank-of-england-limit-large-loans-housebuyers-mortgage-lenders

Edited by Corruption

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