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Are Low Deposit Mortgages Propping Up The Housing Market?

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The number of people buying houses with low-value deposits has risen by 7.3 per cent in the last year. Lending to borrowers who have only small deposits (15 per cent or less of the property’s value) accounted for 16.3 per cent of house purchases in April, up 1.4 percentage points from the same month last year (14.9 per cent). The drop in the number of mortgage approvals means that high loan-to-value (LTV) mortgages are of increasing importance to the market, and that the bottom end of the property spectrum cannot be ignored. This is clear from the election campaign and recent politics in general, where parties have tried to woo first-time buyers.

The figures show people are still willing to borrow proportionately large sums for homes, and that demand is there, even if it was tempered by MMR restrictions last year. http://www.cityam.com/215748/uk-house-prices-are-low-deposit-mortgages-propping-housing-market

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Yes and no.

I know several people at work who have taken out those exotic government sponsored products like 95% LTV and shared ownership (later to regret).

They would have been propping up prices with their borrowed cash, but then on the other hand if the govt. wasn't promoting lending all of this funny money these people would be causing rental demand and helping to push up prices that way.

So yes, because they are getting funds that can outbid landlords and no because they would otherwise be causong rental (landlord) demand.

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Would be interesting to know the figures for 5% deposits, then again what is the 'true' deposit figure for first time buyers now we have HTB government deposits/guarantees etc?

15% is probably back to being viewed as a decent/safe deposit percentage by the banks, I know a few second steppers who now have a LTV of 15% or less, because of the massive cost increase of getting one extra bedroom.

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Would be interesting to know the figures for 5% deposits, then again what is the 'true' deposit figure for first time buyers now we have HTB government deposits/guarantees etc?

Exactly, The mortgage is 75% ltv, but the first time buyers put only 5% deposit.

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Are government funded low interest rate sub-prime mortgages, bank deposit guarantees and VI mass propaganda propping up the housing market ?

YES.

Edited by TheCountOfNowhere

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Yes and no.

I know several people at work who have taken out those exotic government sponsored products like 95% LTV and shared ownership (later to regret).

They would have been propping up prices with their borrowed cash, but then on the other hand if the govt. wasn't promoting lending all of this funny money these people would be causing rental demand and helping to push up prices that way.

So yes, because they are getting funds that can outbid landlords and no because they would otherwise be causong rental (landlord) demand.

I agree with what you said. Where is the saturation point? It looks like London has reached already the read line, where landlords, FTB and tenants are stretched to maximum.

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I agree with what you said. Where is the saturation point? It looks like London has reached already the read line, where landlords, FTB and tenants are stretched to maximum.

Who knows? IMO the ideal situation is where that are thousands of cheap empty houses available.

Empties do the general public a lot of good whilst hurting landowners and bankers.

Re: London, I think the London fad is already wearing thin.. Is London really fashionable now? I would expect to see a rush for the burbs startling late last year.

Ultimately it all boils down to building restrictions and low interest rates.

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I work in London. Everybody I have spoken to seems to think the current market is ridiculous and unsustainable.

Quite a few would like to punch Boris, Osborne, Carney & Mylene Klaas in the face, a sentiment I can understand.

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Skipton raises new build LTVs

Skipton will raise its loan-to-values for new build flats from 75% to 85% on Monday as part of a comprehensive overhaul of its new build range.

The new proposition was designed in tandem with brokers and includes deals up to 90% loan-to-value on houses and 85% LTV on flats, free valuations, extendable mortgage offer periods on a six months plus six months basis – supporting off plan purchases, up to £1,000 cashback on selected deals and dedicated new build underwriters.

The launch is backed by the creation of a specialist new build support team.

Paul Darwin, Skipton's head of intermediary relationships, said: "We see the new build market as essential in meeting the growing UK housing need. It plays a key role in supporting both first time-buyers and hardworking families looking to move up the ladder.

"Our move from 75% to 85% LTV on flats reflects our belief that the market is being overly cautious in relation to new build properties, which are being built to a high standard in areas of strong demand.

"All Skipton's residential new build applications are now given a free valuation, instructed as soon as we receive the fully packaged case. We believe this will increase our speed of service and further demonstrates our commitment to meeting the real life lending needs of our customers."

http://www.mortgageintroducer.com/mortgages/252567/5/Industry_in_depth/Skipton_raises_new_build_LTVs.htm

It's this sort of thinking at a time when lenders are fighting for market share that leads to increased systemic risk (I'm not saying that the risk is that great at present, just that 'relaxation creep' in lending policies can in the aggregate result in much higher risk over time).

As we know from past experience, a lumbering institution such as the BoE is incredibly slow to even become aware of these changes, let alone react to them.

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http://www.mortgageintroducer.com/mortgages/252567/5/Industry_in_depth/Skipton_raises_new_build_LTVs.htm

It's this sort of thinking at a time when lenders are fighting for market share that leads to increased systemic risk (I'm not saying that the risk is that great at present, just that 'relaxation creep' in lending policies can in the aggregate result in much higher risk over time).

As we know from past experience, a lumbering institution such as the BoE is incredibly slow to even become aware of these changes, let alone react to them.

Time to take my money out of skiptoo !!!!

New builds are insane prices, supported by the government schemes and government lenders.

Stop this madness I want to get off.

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How long until we see the 100% mortgage return then ?

Look at it this way, a northern Rock 120% mortgage in 2007 is now less insane that a 95% mortgage on a flat in London.

Wages haven't gone up. Cost of living has, which has taken up the slack in interest rates.

To say we are about to see a crash in London is an understatement.

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To say we are about to see a crash in London is an understatement.

+1

The collapse in sales at the top of the market was blamed on the threat of Mansion Tax though it started after the stamp duty changes in April's budget. The extra duty payable on properties over £937k and charging CGT on foreign's transactions have killed the golden goose, its now a lame duck.

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+1

The collapse in sales at the top of the market was blamed on the threat of Mansion Tax though it started after the stamp duty changes in April's budget. The extra duty payable on properties over £937k and charging CGT on foreign's transactions have killed the golden goose, its now a lame duck.

you mean it was a lame duck dressed up as a golden goose

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http://www.mortgageintroducer.com/mortgages/252567/5/Industry_in_depth/Skipton_raises_new_build_LTVs.htm

It's this sort of thinking at a time when lenders are fighting for market share that leads to increased systemic risk (I'm not saying that the risk is that great at present, just that 'relaxation creep' in lending policies can in the aggregate result in much higher risk over time).

As we know from past experience, a lumbering institution such as the BoE is incredibly slow to even become aware of these changes, let alone react to them.

Maybe I was wrong.

------------

"So, what can go wrong – the risks? The first area that I would highlight is the potential for margin pressure. Most forecasters see continued growth in the mortgage market as the most likely development, but at a lesser pace than in recent years, which is consistent with actions taken by the Bank of England last summer to limit the growth of borrowing by highly indebted households. Competition in the mortgage market is growing, and for instance rates on two year fixed rate mortgages are at a record low. On the liability side, wholesale funding costs are low, and on much of the evidence they are below retail funding costs on average, and that tends to benefit lenders with greater access to wholesale funding. Therefore, notwithstanding the news on interest margins over the last two years, we are watching this story carefully to see what happens next.

"The second risk unfortunately follows from the first, namely that increasing pressure on interest margins can tempt lenders to seek higher returns on assets through riskier loans, and to concentrate more on short-term funding thereby increasing the mismatch. We saw this before the financial crisis broke in 2007 as lenders ventured into higher LTV, sub-prime and commercial property lending without having adequate risk management in place. We also saw this in the late 1980s and early 1990s. This diversification was generally not successful, and in some cases fatal. Since the height of the crisis societies have generally reduced their commercial property loans, and non-prime has declined too. The main area of growth has been buy-to-let lending, which is true not just for societies but for lenders in general. Now, I don’t want to demonise buy-to-let lending. We are watching carefully, and for the societies we see no evidence today that BTL loans are of poorer quality than prime owner-occupier, and we see a fair amount of stability over time in maximum LTV and minimum rental cover. But, we are watching carefully, and of course applying stress testing across all loans.

"Looked at more broadly, we are not seeing an upward surge in high LTV lending of the sort that was so damaging in the past, but there is an upward direction to the – admittedly small – share of lending at high LTV and high loan-to-income (ie the two together). We are, again, watching this carefully, and it is why in 2010 we implemented the Building Societies Sourcebook to encourage appropriate risk management of lending and funding. The latter will be supported in future when we implement the net stable funding ratio which is the international standard to discourage reliance on short-term funding."

------------

Speech given by Andrew Bailey, Deputy Governor, Prudential Regulation and Chief Executive Officer, Prudential Regulation Authority

At the Building Societies Association Annual Conference, Harrogate 21 May 2015

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Maybe I was wrong.

------------

"So, what can go wrong – the risks? The first area that I would highlight is the potential for margin pressure. Most forecasters see continued growth in the mortgage market as the most likely development, but at a lesser pace than in recent years, which is consistent with actions taken by the Bank of England last summer to limit the growth of borrowing by highly indebted households. Competition in the mortgage market is growing, and for instance rates on two year fixed rate mortgages are at a record low. On the liability side, wholesale funding costs are low, and on much of the evidence they are below retail funding costs on average, and that tends to benefit lenders with greater access to wholesale funding. Therefore, notwithstanding the news on interest margins over the last two years, we are watching this story carefully to see what happens next.

"The second risk unfortunately follows from the first, namely that increasing pressure on interest margins can tempt lenders to seek higher returns on assets through riskier loans, and to concentrate more on short-term funding thereby increasing the mismatch. We saw this before the financial crisis broke in 2007 as lenders ventured into higher LTV, sub-prime and commercial property lending without having adequate risk management in place. We also saw this in the late 1980s and early 1990s. This diversification was generally not successful, and in some cases fatal. Since the height of the crisis societies have generally reduced their commercial property loans, and non-prime has declined too. The main area of growth has been buy-to-let lending, which is true not just for societies but for lenders in general. Now, I don’t want to demonise buy-to-let lending. We are watching carefully, and for the societies we see no evidence today that BTL loans are of poorer quality than prime owner-occupier, and we see a fair amount of stability over time in maximum LTV and minimum rental cover. But, we are watching carefully, and of course applying stress testing across all loans.

"Looked at more broadly, we are not seeing an upward surge in high LTV lending of the sort that was so damaging in the past, but there is an upward direction to the – admittedly small – share of lending at high LTV and high loan-to-income (ie the two together). We are, again, watching this carefully, and it is why in 2010 we implemented the Building Societies Sourcebook to encourage appropriate risk management of lending and funding. The latter will be supported in future when we implement the net stable funding ratio which is the international standard to discourage reliance on short-term funding."

------------

Speech given by Andrew Bailey, Deputy Governor, Prudential Regulation and Chief Executive Officer, Prudential Regulation Authority

At the Building Societies Association Annual Conference, Harrogate 21 May 2015

I'm not sure if Mr Unsight saw this. I thought it would be right up his street.

It has been noted he needs to get out more.

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Skipton raises new build LTVs

Skipton will raise its loan-to-values for new build flats from 75% to 85% on Monday as part of a comprehensive overhaul of its new build range.

One month later:

Skipton ups new build flat LTV to 90pc

Jonathan Clark, mortgage partner at Chadney Bulgin: "New-build flats have been treated with contempt by most lenders for too long, so it's great to see a more forward-thinking lender relaxing the criteria."

Meanwhile a few days ago:

Virgin loosens new-build deposit requirements

"Virgin Money has loosened its new-build criteria and now accepts cash incentives from builders as part of the deposit."

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wow, relaxing the criteria and accepting gifted deposits....so 2006.

Clearly MMR controlled mortgages are NOT what is holding back the lending...its LTVs!

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"The figures show people are still willing to borrow proportionately large sums for homes, and that demand is there, even if it was tempered by MMR restrictions last year."

The figures also show that lenders are still willing to lend proportionately large sums for homes and that there is money there to be lent

Yes, the willingness of lenders to lend money against an asset class does surely push up the price of that asset class. As sure as eggs is eggs.

In the UK right now though it is beyond that. When the government backs up its legislation with taxpayers money to fund the purchase of a house, then house prices will have a hard time doing anything except rising

The story doesn't end well, but lenders and the government have written a couple of extra chapters and slipped then in whilst you were reading.

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