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Billy Ray Valentine

Mortgage Regulations Having More Effect Than Thought?

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I've recently been giving some thought to the mortgage regulations that have been put in place earlier this year and whether or not they are having a significant impact on the housing market. It seems to me that many people on this forum are underestimating the impact these rules are having and are going to continue to have.

Banks are now required to lend no more than 15% of their total mortgages at income multiples of more than 4.5x. This limit applies to both joint and single incomes.

Before this rule was implemented the banks were lending little more than 10% of their mortgages at these multiples anyway, and in a recent report it was estimated that they are now lending a little less than 10% of their total mortgage book at these incomes, so a fall.

The latest mortgage figures have shown up a fall, with roughly 64'000 mortgage being issued last month. So at less than 10% of mortgages at 4.5x income leaves us with roughly 6'000 mortgage issued last month at these multiples.

Is that a great number? Do we know how many of these mortgages were issued to single income borrowers? How many of these mortgages were issued to buyers in London or hot spots in the south east? How many of these mortgages were issued to borrowers taking on debt at only slightly higher than the 4.5x income multiple? I think when all these questions are taken into account the level of mortgages being issued at significantly higher than x4.5+ joint income borrowers must be incredibly small, especially when the number of these mortgages taken out on London property are taken away from the total.

Even if 2 third of this 6'000 total are at joint incomes that only makes 4'000. Even if you double mortgages currently being issued (can't see that happening anytime soon) there is going to be only an annual total of less than 100'000 mortgages issued nationwide at more than 4.5x joint income, with little doubt a high proportion of these loans are not significantly higher than 4.5x joint.

Considering that house prices to wages in many parts of the country are already at these levels and mortgage interest rates can't conceivably go much lower where are further price rises going to be driven from?

Then there are the mortgage stress tests. Can buyers afford to pay up to 7% interest on their mortgage? Surely this rule is going to work in synergy with the x4.5 income rule? The buyers who are looking to borrow more than x4.5 their income are most likely to have their application rejected as they are naturally more at risk to rate increases?

Younger couples are being quizzed at their likelihood of having children, and the banks are now much more cautious at lending to people who are in this circumstance, whether they answer yes or no to the question of starting a family?

Wannabe FTB couples now are people in their twenties/early 30's, many of them saddled with university debt/ car loans or credit card bills etc. How many couples are there in this demographic who are both in reasonably paid, secure jobs with no other debt, or desire to start a family who haven't already bought at these insane multiples?

Where I am it's already apparent that prices have hit a wall, and supply is building. Sales falling through, regular reductions. many places I've been following have slashed 10-15% off their asking prices and still are not finding buyers. If things don't pick up over the next month or so I think there could be a mini crash here (Northampton) whatever happens in the London market.

If London really does go it's going to be carnage leading up to spring, and with the uncertainty surrounding the election it's going to make matters worse with possibly no 'spring bounce'.

Frankly for the HPI cheerleader brigade, it's over.

Edited by Billy Ray Valentine

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You find me anything in this search area thats bordering on sanity and i'll give you £5.

http://www.rightmove.co.uk/property-for-sale/find.html?locationIdentifier=REGION%5E1130&sortType=6&maxPrice=230000&maxDaysSinceAdded=14&radius=5.0&googleAnalyticsChannel=buying

Prices down from utter insane lunatic kite flying prices to insane lunatic kite flying prices, but the banks seem to have no end of debt on offer to keep prices ludicrously high.

FFLS withdrawal and MMR have made bugger all difference if you ask me, maybe MMR brought forward the halt in huge price hikes by a few months.

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http://www.rightmove.co.uk/property-for-sale/property-48513782.html

I'll PM you my address for you to send me my fiver. Cheers

I cant even aspire to be a pikey anymore ... but that value for money ..... Only a few mile down the road in Christchurch, best part of 200K gets you a shed

http://www.rightmove.co.uk/property-for-sale/property-44673958.html

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The 15% limit is targeted at London where 20% of borrowers had larger than 4.5x loans. Elsewhere in country it was less than 4.5 which will probably explain the average of 10% you saw.

You can find out individuals borrowing from the BOE publications, (part 2).

http://www.bankofengland.co.uk/statistics/documents/mc/2014/aug/moneyandcredit.pdf

So 5% of borrows not allowed to over stretch in London doesn't seem like it would have a big impact. And keep in mind BOE relaxed the rules last minute where smaller companies could still do the loans if their turn over was less than £100mil. So basically BOE just shifting the risk away from the general banks and into niche lenders. I'm sure it will have a small impact for a little while but the BTL pensioners will certainly gobble up any falls come April. The crash should be clear by the time the BOE and EU regulations kick in on the BTL market in 2016. Only significant wage rises would keep prop prices up.

-Just my opinion though.

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The same stuff has been tried in Canada - I'm guessing that was the inspiration for the UK version - and it sort of worked for a while then prices started rising again. There may be a short lull but I'd be amazed if prices didn't start shooting up again soon.

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The same stuff has been tried in Canada - I'm guessing that was the inspiration for the UK version - and it sort of worked for a while then prices started rising again. There may be a short lull but I'd be amazed if prices didn't start shooting up again soon.

Because they are such good value now?

I'm in a double pincer. Those believing house prices good value, and forever HPI, but if prices fall, it's someone else's fault other than the buyer who automatically becomes a victim. Those believing houses massively over-valued, but always putting buyers who pay the ever higher prices as the victims. Those always seeing no sign of crash... politicians and banks wouldn't want it.... renters/upsizers of no consquence at all. Those always claiming banks to blame, but want bankers to lend on the lavish lash again, as it's always jumbo mortages and bailouts in their world... and never possibility there will be a drop in demand (perhaps reason banks putting out teaser rates again).

People outbidding you first by £10Ks, then £50K, then £100Ks, then £quarter-million+ the victims forever more.

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Buyers make their own decisions - how can anyone disagree with that?

Bless em, outbidding me by as much as £250,000 at my end of the market, for basic semi-detached hosues with a driveway. The victims. Carry them on your shoulders, they have no choice and their lives more important than everyone else. Such entitlement... they make their own decisions. x10000s of these positions, year after year after years.

I used to think like you but I've come down the other way now. People have little choice. They are not as obsessed and knowledgable as people here. They are basically being driven into a corner. Either suffer the travails of amateur landlords and short term tenancies or buy an outpriced home.

For many who want stability for their young families they feel they have no choice.

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The 15% limit is targeted at London where 20% of borrowers had larger than 4.5x loans LIAR LOANS. Elsewhere in country it was less than 4.5 which will probably explain the average of 10% you saw.

You can find out individuals borrowing from the BOE publications, (part 2).

http://www.bankofengland.co.uk/statistics/documents/mc/2014/aug/moneyandcredit.pdf

So 5% of borrows ..///....

-Just my opinion though.

Corrected. :rolleyes:

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The 15% limit is targeted at London where 20% of borrowers had larger than 4.5x loans. Elsewhere in country it was less than 4.5 which will probably explain the average of 10% you saw.

You can find out individuals borrowing from the BOE publications, (part 2).

http://www.bankofengland.co.uk/statistics/documents/mc/2014/aug/moneyandcredit.pdf

So 5% of borrows not allowed to over stretch in London doesn't seem like it would have a big impact. And keep in mind BOE relaxed the rules last minute where smaller companies could still do the loans if their turn over was less than £100mil. So basically BOE just shifting the risk away from the general banks and into niche lenders. I'm sure it will have a small impact for a little while but the BTL pensioners will certainly gobble up any falls come April. The crash should be clear by the time the BOE and EU regulations kick in on the BTL market in 2016. Only significant wage rises would keep prop prices up.

-Just my opinion though.

10% of those with their declared incomes.

LIAR LOANS?...never and dont exist...ever.

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I recently went through the mortgage application process, (just for the lulz).

My wife and I are in the 95% percentile for NET household income (having just looked at the figures). We went through all of the budgeting and expenditure questions. We're basically zero debt, we have no car loans, credit card balances or crap like that, we live relatively frugally, and they don't include things they consider discretionary - like holidays, gym membership etc.

It seems under the new mortgage rules, we are able to borrow around 3.25x household income (We only tried a couple of providers).

Where we live (in the south east) that would allow us to buy a pretty modest home, even including our fairly substantial deposit.

From this I conclude that in the UK today, the amount of money you earn is not what determines what house you are able buy. It is more down to family wealth. Not huge amounts of family wealth, just a background (BOMAD) wealth large enough to push you beyond what is reasonably affordable to those like us who rely solely on earnings.

Obviously, restricting credit will reduce the amount of money in the housing market, but it will probably in itself only have a marginal effect on property prices, and with things like HtB pushing taxpayer's money in, it will probably be neutral at best.

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10% of those with their declared incomes.

LIAR LOANS?...never and dont exist...ever.

All that exists is huge differences of opinion between individuals/entities about value of house prices, prices stability and so on. You should know something about that Mr Peak buyer repo.

No one forced your liars to borrow as they did - all they had to do was keep up their repayments. It is also not the fault of others that some pay extreme prices, and one of the most important things in their sewer minds, is extrapolating even more HPI wealth to come in the future as 'smart' debtor-owners. At least one person on the prime London thread expects more HPI, to better position his own family for the future, as he plans to pay £250,000 more than someone else thinks is value for a flat.

The slag position on HPC that over-borrowers 'Just wanted a home' / 'Couldn't have expected a recession or crash' might work for £10,000... but it's orders of £1/4 million the scum outbid others by. They don't need your excuses. We also have familiy that matters, who 'want a home' but never to put at risk our financial security for it, unlike victims.

I used to think like you but I've come down the other way now. People have little choice. They are not as obsessed and knowledgable as people here. They are basically being driven into a corner. Either suffer the travails of amateur landlords and short term tenancies or buy an outpriced home.

For many who want stability for their young families they feel they have no choice.

They outbid us by hundreds of thousands of pounds. Not as obsessed and knowledgable - and suffer amateur landlords too along the way as they outbid us by hundreds of thousands of pounds for their entitlement. No one needs your excuses and focus for debtors.

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I recently went through the mortgage application process, (just for the lulz).

My wife and I are in the 95% percentile for NET household income (having just looked at the figures). We went through all of the budgeting and expenditure questions. We're basically zero debt, we have no car loans, credit card balances or crap like that, we live relatively frugally, and they don't include things they consider discretionary - like holidays, gym membership etc.

It seems under the new mortgage rules, we are able to borrow around 3.25x household income (We only tried a couple of providers).

Where we live (in the south east) that would allow us to buy a pretty modest home, even including our fairly substantial deposit.

From this I conclude that in the UK today, the amount of money you earn is not what determines what house you are able buy. It is more down to family wealth. Not huge amounts of family wealth, just a background (BOMAD) wealth large enough to push you beyond what is reasonably affordable to those like us who rely solely on earnings.

Obviously, restricting credit will reduce the amount of money in the housing market, but it will probably in itself only have a marginal effect on property prices, and with things like HtB pushing taxpayer's money in, it will probably be neutral at best.

Bomad wealth can only prop up the market for so long. At least banks offloading debt positions in the process.

Some softening and change in sentiment, remaining buyers with bomad wealth may become less inclined - leaving sellers stranded trying to obtain their mad high prices.

Then with falling prices, homeowner equity shouldering it, you can't expect the banks to step in, and relax mortgage qualifying criteria - most likely it will be stepped up for a while.

For older owners, housing has been a substitute for financial savings. Before these paper windfalls generated since the seventies can be converted to cash, however, new buyers must be found.

Most buyers will not have sufficient cash reserves to pay 50 percent down. Therefore mortgage lenders will have to absorb a growing share of the housing market for prices to remain stable. They are unlikely to do this. Losses on real estate loans will be the main cause of increasing losses in the banking system. Creditors normally react to rising losses by curtailing lending, imposing higher qualifications on borrowers, and raising loan rates higher than they would be otherwise.

As this trend becomes apparent, aging homeowners, who are depending on their homes to provide retirement security, will try to sell. Paul Hewitt estimates that "the predicted trade-up market among the Baby Boom generation (born 1946-1964) may nor fully materialise if a growing number of middle-class boomers elect to remain in housing they consider merely adequate, rather than risk their equity in larger luxury homes."

A combination of demographic trends, the deflationary fallout from the end of the Cold War, and the decay of infrastructure in urban areas could make housing perform poorly. This would hit the middle class hard, endangering the savings of millions. It could be just one of several factors contributing to the evaporation of retirement.

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From this I conclude that in the UK today, the amount of money you earn is not what determines what house you are able buy. It is more down to family wealth.

Over the last couple of years, I have seen friends doing average jobs buy houses at £700-900K. I can only assume Granny popped off and left them a London property to sell.

One of the long-term problems is that it kills motivation for everyone without family wealth. Paid work is taxed so highly that you can't provide for you own education/house/pension using your own efforts any more.

Over twenty years ago, I left the country for better opportunities but came back when houses were affordable. I dont know how easy it would be do to that today.

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The BOE credit conditions survey in the press today is very interesting. For all the spin there looks to have been a collapse in both supply and demand of mortgages. Going forward the margins look under pressure as banks slash rates presumably on the two year fixes ? It will be interesting to see whether the expected demand comes through. There is a general election looming which creates uncertainty particularly in respect of the tax policies. If enough delay purchasing Demand could sink rapidly.

Edited by Ash4781

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Over the last couple of years, I have seen friends doing average jobs buy houses at £700-900K. I can only assume Granny popped off and left them a London property to sell.

One of the long-term problems is that it kills motivation for everyone without family wealth. Paid work is taxed so highly that you can't provide for you own education/house/pension using your own efforts any more.

Over twenty years ago, I left the country for better opportunities but came back when houses were affordable. I dont know how easy it would be do to that today.

About 5 years ago, I moved to the posh part of town (renting). - the schools are better here, etc. blah, yawn. The small 2-3 bed houses on our street are sold for between £500k and £750k depending on size/ condition.

Our immediate next door neighbours are a couple with kids, one is an "artist", the other works part time doing proof-reading, there are a few people in 60s+ who obviously bought years ago, there's a trustafarian family who don't appear to work as such, another couple we know around the corner, one works as a university lecturer, the other is a teaching assistant. A third couple, only the husband works - for a charity (wife from wealthy family) were moaning at the school parents evening that they couldn't find a buyer for £1m.

These are not jobs that afford you a £700k+ home. I don't see any relationship between earnings and housing in our neighbourhood. It's all about who your parents are/ were.

We need to return to a situation where work pays. Both for the lowest paid, so they can actually afford to eat and pay bills without relying on government handouts, and the higher earners who want to try and get ahead in life.

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You find me anything in this search area thats bordering on sanity and i'll give you £5.

http://www.rightmove.co.uk/property-for-sale/find.html?locationIdentifier=REGION^1130&sortType=6&maxPrice=230000&maxDaysSinceAdded=14&radius=5.0&googleAnalyticsChannel=buying

Prices down from utter insane lunatic kite flying prices to insane lunatic kite flying prices, but the banks seem to have no end of debt on offer to keep prices ludicrously high.

FFLS withdrawal and MMR have made bugger all difference if you ask me, maybe MMR brought forward the halt in huge price hikes by a few months.

I'm not saying that prices aren't still insane in many areas (beyond insane in many) but I feel that the mortgage regs (MMR income multiple limits etc) are having a definited impact. Whether or not these in themselves will be enough to bring about a crash is unlikely, but I think the days of huge house price increases are gone.

It was always going to take a few months for these regs to even begin to have any effect but I think it'

s certainly effecting the market now. In Northampton the shift in the last couple of months has been fairly dramatic. Still not saying it's crashing yet, but I would be amazed if YOY by spring isn't firmly down in most indexes.

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The 15% limit is targeted at London where 20% of borrowers had larger than 4.5x loans. Elsewhere in country it was less than 4.5 which will probably explain the average of 10% you saw.

You can find out individuals borrowing from the BOE publications, (part 2).

http://www.bankofengland.co.uk/statistics/documents/mc/2014/aug/moneyandcredit.pdf

So 5% of borrows not allowed to over stretch in London doesn't seem like it would have a big impact. And keep in mind BOE relaxed the rules last minute where smaller companies could still do the loans if their turn over was less than £100mil. So basically BOE just shifting the risk away from the general banks and into niche lenders. I'm sure it will have a small impact for a little while but the BTL pensioners will certainly gobble up any falls come April. The crash should be clear by the time the BOE and EU regulations kick in on the BTL market in 2016. Only significant wage rises would keep prop prices up.

-Just my opinion though.

Thanks for the info.

The days of a single earner borrowing 5-8x their income are certainly all gone though. There might be a lot of FTB couples out there but they aren't going to sustain the market at these levels by themselves, BOMD or not.

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The same stuff has been tried in Canada - I'm guessing that was the inspiration for the UK version - and it sort of worked for a while then prices started rising again. There may be a short lull but I'd be amazed if prices didn't start shooting up again soon.

Not a chance.

The demand simply isn't there now IMO.

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I recently went through the mortgage application process, (just for the lulz).

My wife and I are in the 95% percentile for NET household income (having just looked at the figures). We went through all of the budgeting and expenditure questions. We're basically zero debt, we have no car loans, credit card balances or crap like that, we live relatively frugally, and they don't include things they consider discretionary - like holidays, gym membership etc.

It seems under the new mortgage rules, we are able to borrow around 3.25x household income (We only tried a couple of providers).

Where we live (in the south east) that would allow us to buy a pretty modest home, even including our fairly substantial deposit.

From this I conclude that in the UK today, the amount of money you earn is not what determines what house you are able buy. It is more down to family wealth. Not huge amounts of family wealth, just a background (BOMAD) wealth large enough to push you beyond what is reasonably affordable to those like us who rely solely on earnings.

Obviously, restricting credit will reduce the amount of money in the housing market, but it will probably in itself only have a marginal effect on property prices, and with things like HtB pushing taxpayer's money in, it will probably be neutral at best.

Nice post. I think this is exactly what is happening and is having a very real effect of the market now. BOMAD isn't going to drive HPI. When it becomes apparent to the majority the impact these rules are having and the feeling of having to 'get on the ladder before it's too late' has all but evaporated then IMO BOMAD will drastically reduce.

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The BOE credit conditions survey in the press today is very interesting. For all the spin there looks to have been a collapse in both supply and demand of mortgages. Going forward the margins look under pressure as banks slash rates presumably on the two year fixes ? It will be interesting to see whether the expected demand comes through. There is a general election looming which creates uncertainty particularly in respect of the tax policies. If enough delay purchasing Demand could sink rapidly.

I think this is already happening.

Mortgage approvals falling, banks cutting rates/offering incentives to drum up business. Reductions aplenty where I am, sales falling through/chains breaking down. It's looking potentially like a long hard winter for home sellers.

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It seems under the new mortgage rules, we are able to borrow around 3.25x household income (We only tried a couple of providers).

But if you were willing to take a penal rate on a 5year fixed you could of had 4.49x no questions asked (literally).

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