The BTL IO mortgage rates thread

[spyguy]

39 minutes ago, Bland Unsight said:

The constraint on lending to first-time buyers in MMR is not LTI, it's servicing the mortgage at a 5.5% stress rate (referred to as 'affordabillity').

The FPC have been quite clear that they see a financial stability risk where mortgaged households spend north of 35% of after tax income on the mortgage. Hence you need to work the size of a mortgage that 35% of the household income can cover on a repayment basis at an interest rate of 5.5%.

This is why you don't feed trolls. The conversation RushRoad has started is predicated on ignorance. RushRoad has trolled this thread and dragged it off its intended topic.

After tax and any repeating expense - utilities, car finance, petrol, childcare, etc.

[Democorruptcy]

17 minutes ago, spyguy said:

After tax and any repeating expense - utilities, car finance, petrol, childcare, etc.

You posted

"Im not sure where 190k comes from, even with the most optimistic money"

I was just trying to help you. For annual pay it's weekly wage x 4.333 x 12 

 

[RushRoad]

9 hours ago, spyguy said:

Wooh there.

Its 38h week. They might get OT. But theres little OT out yhere.

Thats gross income.

Take out payroll taxes, pension,  utilities, transport cost, student loans.

Youll find that 36 gross drops down to 20k pretty quick.

 

The vast majority of the population are on more than minimum wage and the few people I know who are on min wage tend to do 50+ hours a week

Lets try again, using your 38 hours instead

38 hours x £9 per hour by the end of the decade x 52 weeks a year x two people in a couple = £35,568 (remember they get some paid time off too)

Income x 4.5 mortgage multiplier = £160,000 loan available from the bank + whatever deposit they have.

In theory they could buy a £200,000 house if they had a 20% deposit, or a ~£178,000 house if they have a 10% deposit

 

By comparison the median two bedroom house (not flat) in Birmingham is £130,000 today so they are well within budget to purchase said house

Taxes do not take much from people on min wage, in this year someone working 38h a week on min wage gets taxed 9.9% of their gross wage for income tax and NI combined. Fast forward to the year 2020 and its not unreasonable that the min wage workers of that year also see just a 10% tax rate

So our couple have £32,000 post tax income, no student debts to pay off they earn too little, whats the mandatory workplace pension 2%? hardly anything, There is no way utilities and transport will take them from £32k post tax income to £20k

[spyguy]

Lets try, with some easy, rough figures.

Punch in an easy number 16k each - thats more than NMW.

Tax free up to 12k, 4k taxed @ 30% = 1k tax paid = 15k each.

30k take home/year.

Council tax 1500.

Gas leccy phone = 1k

Car/travel = 2k

Down to 25k.

Food - 1k/month

Now down to 13k.

Holidays, trips, kids stuff, going out, clothes, etc. It soon all goes.

You make the mistake in assuming people are willing to spend every bit of their income on housing. They are not.

Out of a 25k income, the MMR will limit the mortgage to about ~8k/year.

Edited April 22, 2017 by spyguy

[RushRoad]

7 hours ago, Toast said:

Hi RushRoad. Thank you for continuing to post here: we need a diversity of opinions to keep up the debate, and especially from people who will dig up new data and make interesting calculations. Sorry that you are getting (what appears to me to be) a lot of ad hominem

I am trying to ignore the few posters who do that, most people here are reasonable

 

7 hours ago, Toast said:

What strikes me most from this calculation is that 4.5x joint income is a very dangerous limit for the banks to set. It wasn't that long ago that 4.5x a single income would have been seen as teeth-clenchingly risky.

It is possible that if interest rates stay low into the distant future, then a couple could indeed continue to service this debt (or the slightly lower multiples which you point out would obtain in many regions), so that they would be, in some sense, affordable.

However, in the past, a high level of debt would have been eroded by wage increases, so that a few years down the line there would be some room for one partner to do something crazy, like bringing up a family, or would mitigate the risk that one of the two would have a period of unemployment. It is this cutting off of future opportunity, the pricing of housing for a "perfect" future of no kids and no job losses, together with the very real possibility that the credit cycle has turned, that makes me think these multiples are insane.

 

But they do not have to borrow upto the max, the median price for a two bed in Birmingham is for instance £130,000 well below the £198,200 budget a couple on the min wage would have in 2020 (£9ph 40h a week 52 weeks a year 4.5x mortgage and 15% deposit, remember they get about 30 paid working days off too)

Some people think there is a house price crash on the way but lets just assume prices stay flat, if our couple were in Birmingham and they had a £20,000 deposit they would only need to borrow £110,000 to buy the median two bedroom house which is 2.9 x their joint income. And remember this is the median house there are plenty of houses for sale at a lower price in fact half of the homes sold are sold for less and there are flats if they want something cheaper. Their repayment mortgage would be under £500 per month which is just 17% of their gross income.

Yes I agree at some stage the woman might have children but that is often just a temporary leave from work.

Also if the couple did have two children they would get about £4k in child benefits and other benefits each year, if one left work to look after them their earned income would drop but their benefits would increase to £9,000 a year so they are not that much worse off. So its not difficult to have children even working min wage jobs. In the UK children dont cost money for the low paid so I do not think that is a valid point or fear

[RushRoad]

7 minutes ago, spyguy said:

Lets try, with some easy, rough figures.

Punch in an easy number 16k each - thats more than NMW.

Tax free up to 12k, 4k taxed @ 30% = 1k tax paid = 15k each.

30k take home/year.

Council tax 1500.

Gas leccy phone = 1k

Car/travel = 2k

Down to 25k.

Food - 1k/month

Now down to 13k.

Holidays, trips, kids stuff, going out, clothes, etc. It soon all goes.

You make the mistake in assuming people are willing to spend every bit of their income on housing. They are not.

Out of a 25k income, the MMR will limit the mortgage to about ~8k/year.

 

Why do you not do an actual budget rather than a pretend one?

Add in the 4-5k of child benefits and other benefits people with kids get if they are both working or the £9-10k they get if just one parent is working

£1k for food per month, £230 per week! Are you mad. Half that for any reasonable family that cooks decent food from base ingredients, not even half that is too much.

People on min wage do not need to go on holidays although they probably can afford to do so.

 

And remember the majority of people earn more than min wage, this is a worse case

Do an actual budget

[RushRoad]

7 hours ago, Bland Unsight said:

The constraint on lending to first-time buyers in MMR is not LTI, it's servicing the mortgage at a 5.5% stress rate (referred to as 'affordabillity').

The FPC have been quite clear that they see a financial stability risk where mortgaged households spend north of 35% of after tax income on the mortgage. Hence you need to work the size of a mortgage that 35% of the household income can cover on a repayment basis at an interest rate of 5.5%.

This is why you don't feed trolls. The conversation RushRoad has started is predicated on ignorance. RushRoad has trolled this thread and dragged it off its intended topic.

 

Ok lets go with what you say

 

£37,440 joint income (£9ph x 40h/w x 52w/y x couple),

Taxed at 10% income and NI (full time min wage is taxed 9.9% of gross today) Gives our couple £33,700 post tax,

35% of that is £11,795 which is £980 per month

£980 per month supports a 25 year repayment mortgage at 5.5% interest rates for the sum of £160,000

So are you saying our couple will be limited to £160,000 mortgage?

That is 4.27 x their gross or 4.75 x their net income

How does this materially change anything in the debate?

 

£160,000 borrowing + £20,000 deposit means our couple on the absolute lowest wages legally possible can buy the median house in 7-8 regions of the uk

[RushRoad]

8 hours ago, spyguy said:

It used to be 2x highest + lower wage.

4.5 joint *is* too high.

 

But we have had 4.5 x joint lending for a long time and repos are tiny so people seem to manage just fine so should we look at actually data of risk/defaults or spyguys gut instinct?

8 hours ago, spyguy said:

And, like you said, need lower ratios with low wage inflation.

Wage inflation is not that low, min wage is going to go from £7.50 now to £9.00 in 3-4 years which is 20% nominal wage inflation. I think we could see a sustained 4% wage inflation for the next decade.

[spyguy]

11 minutes ago, RushRoad said:

 

But we have had 4.5 x joint lending for a long time and repos are tiny so people seem to manage just fine so should we look at actually data of risk/defaults or spyguys gut instinct?

Wage inflation is not that low, min wage is going to go from £7.50 now to £9.00 in 3-4 years which is 20% nominal wage inflation. I think we could see a sustained 4% wage inflation for the next decade.

We've never had 4.5 joint lending.

4 x one income maybe but never joint.

 

[RushRoad]

1 minute ago, spyguy said:

We've never had 4.5 joint lending.

4 x one income maybe but never joint.

 

 

Use 4 x if you like it does not change the argument much at all

4 x joint min wage = £150,000 borrowing

10% deposit means they have a budget of £166,700

15% deposit means they have a budget of £176,500

20% deposit means they have a budget of £187,500

In comparison these are the current median house prices for the regions according to land registry

North East................ £123.7k
Norther Ireland......... £125.5k
Scotland................... £138.8k
Wales....................... £145.3k
North West............... £152.6k
Yorkshire&Humber... £152.2k
East Midlands.......... £176.8k
West Midlands......... £180.5k

 

So 7-8 regions have median house prices that are less than a couple on min wage can afford to bid.

And once again do not forget the majority of people are on wages higher than the minium

[spyguy]

4 x 16k = 64k.

[Kent Ambitions]

21 hours ago, spyguy said:

After tax and any repeating expense - utilities, car finance, petrol, childcare, etc.

Having recently been approved for a large mortgage at high LTV, I can tell you this is partly accurate. However, ridiculously long mortgage terms can mitigate the impact of MMR and affordability checks.

You are stress tested to ensure you can afford the repayment mortgage at 5.5% interest rates, however only certain  'mandatory' expenditure is covered in this. For example, childcare commitments, existing debt repayments and so forth. They do not ask for details of, and make an assumption for, the bare minimum for utilities, food, etc, assuming you could economise on these if things got tough. And at a 40 year term, well it all looks much more affordable.

One thing I did notice is that the mortgage 'calculators' on lenders websites, which frequently say you can borrow 5x your income, and inflated. The most I could have borrowed was 4.5x and I opted to borrow under 4x because, frankly, even at 4.5x income on a reasonable (25 year) mortgage term the repayment figures become frankly terrifying.

[Bland Unsight]

15 hours ago, RushRoad said:

How does this materially change anything in the debate?

*debate* 

It changes things because it is correct, and not some made up nonsense which results from a sketchy understanding of how mortgage lending to owner-occupiers works.

My point is always going to be the same point, over and over again, but I'll just be making it in different ways and bringing out different examples, and my point is this: you simply have no idea what you are talking about.

 

[Ah-so]

15 hours ago, RushRoad said:

 

Ok lets go with what you say

 

£37,440 joint income (£9ph x 40h/w x 52w/y x couple),

Taxed at 10% income and NI (full time min wage is taxed 9.9% of gross today) Gives our couple £33,700 post tax,

35% of that is £11,795 which is £980 per month

£980 per month supports a 25 year repayment mortgage at 5.5% interest rates for the sum of £160,000

So are you saying our couple will be limited to £160,000 mortgage?

That is 4.27 x their gross or 4.75 x their net income

How does this materially change anything in the debate?

 

£160,000 borrowing + £20,000 deposit means our couple on the absolute lowest wages legally possible can buy the median house in 7-8 regions of the uk

Bland Unsight has made a small error on the stress rates. Under MMR residential mortgage stress rates are typically stressed at 6.75% today. The 5.5% above is the stress rate for BTL.

http://www.mortgageintroducer.com/halifax-lowers-stress-rate-0-25/#.WPyL_RnTXqA

That limits borrowing to £150,000 with a typical FTB 30 year mortgage, less than 4 times joint earnings. 

[Kent Ambitions]

18 hours ago, RushRoad said:

 

Use 4 x if you like it does not change the argument much at all

4 x joint min wage = £150,000 borrowing

10% deposit means they have a budget of £166,700

15% deposit means they have a budget of £176,500

20% deposit means they have a budget of £187,500

In comparison these are the current median house prices for the regions according to land registry

North East................ £123.7k
Norther Ireland......... £125.5k
Scotland................... £138.8k
Wales....................... £145.3k
North West............... £152.6k
Yorkshire&Humber... £152.2k
East Midlands.......... £176.8k
West Midlands......... £180.5k

 

So 7-8 regions have median house prices that are less than a couple on min wage can afford to bid.

And once again do not forget the majority of people are on wages higher than the minium

A 40 hour week on the current adult minimum wage of £7.50 an hour would provide 15.6k, or £31,200 for a couple.

But because mortgage lenders make basic assumptions about mortgage affordability (such as the need for food, energy, etc) when it comes to approving a mortgage, the chances of actually getting on at anything like 4x base income when you are on a such a low wage is pretty much zero. 

The more you earn, the more disposable income you have above basic needs which counts toward your actual mortgage affordability. Hence someone earning 100k will be able to get a larger multiple than someone earning 15k.

[Ah-so]

20 hours ago, RushRoad said:

 

But we have had 4.5 x joint lending for a long time and repos are tiny so people seem to manage just fine so should we look at actually data of risk/defaults or spyguys gut instinct?

Wage inflation is not that low, min wage is going to go from £7.50 now to £9.00 in 3-4 years which is 20% nominal wage inflation. I think we could see a sustained 4% wage inflation for the next decade.

You are currently using salaries in 3 years time to assess affordability of today's property prices using a tax rate that is more generous than the current one. I think that it is unlikely that the tax threshold would be lifted so quickly. 

The actual tax bill of your couple would be about £400 p/m, somewhat higher than the 10% you have assumed. 

This reduces their purchasing power by about £100 p/m or roughly 10%. Therefore lop an extra 10% off of the purchase price and ensure that you calculate with a 6.75% stress, but you can look at a 30 or 35 year mortgage. 

[Bland Unsight]

5 hours ago, Ah-so said:

Bland Unsight has made a small error on the stress rates. Under MMR residential mortgage stress rates are typically stressed at 6.75% today. The 5.5% above is the stress rate for BTL.

Oops! Thanks for the catch.

Bit weird that RashedRod didn't catch the error.

[RushRoad]

 

8 hours ago, Ah-so said:

Bland Unsight has made a small error on the stress rates. Under MMR residential mortgage stress rates are typically stressed at 6.75% today. The 5.5% above is the stress rate for BTL.

http://www.mortgageintroducer.com/halifax-lowers-stress-rate-0-25/#.WPyL_RnTXqA

That limits borrowing to £150,000 with a typical FTB 30 year mortgage, less than 4 times joint earnings. 

 

 

Even with the lower £150,000 borrowing + £25,000 deposit it puts more than half the homes in 7 whole regions at a price affordable to a couple on the minimum wage and also some percentage of homes in the other 5 regions are also affordable for our couple on the min wage

So whats the problem?

And again, these are people on the very lowest full time earnings possible while most people earn about twice that figure

[Bland Unsight]

24 minutes ago, RushRoad said:

Even with the lower £150,000 borrowing + £25,000 deposit it puts more than half the homes in 7 whole regions at a price affordable to a couple on the minimum wage and also some percentage of homes in the other 5 regions are also affordable for our couple on the min wage

So whats the problem?

And again, these are people on the very lowest full time earnings possible while most people earn about twice that figure

[RushRoad]

1 minute ago, Bland Unsight said:

 

 

What bit is wrong?

Your friend said they can borrow £150,000 from a bank, add £25,000 deposit and the total is £175,000 which according to the LR is a figure higher than the average price in Wales, Scotland, Northern Ireland, North East, North West, Yorkshire&Humber and very close to the prices of the East and West Midlands

http://landregistry.data.gov.uk/app/ukhpi/explore

[Quicksilver]

On 22/04/2017 at 8:48 PM, RushRoad said:

 

Ok lets go with what you say

 

£37,440 joint income (£9ph x 40h/w x 52w/y x couple),

Taxed at 10% income and NI (full time min wage is taxed 9.9% of gross today) Gives our couple £33,700 post tax,

35% of that is £11,795 which is £980 per month

£980 per month supports a 25 year repayment mortgage at 5.5% interest rates for the sum of £160,000

So are you saying our couple will be limited to £160,000 mortgage?

That is 4.27 x their gross or 4.75 x their net income

How does this materially change anything in the debate?

 

£160,000 borrowing + £20,000 deposit means our couple on the absolute lowest wages legally possible can buy the median house in 7-8 regions of the uk

You have a real cheek!

Where do you pull you ******** stats from? Using your joint income (£37440) split evenly between a couple, with a minimal 1% oension contribution by law:

Take home is £13709 each or £27418 a full £6K less than you claim.

 

 

[dances with sheeple]

1 hour ago, RushRoad said:

 

 

 

Even with the lower £150,000 borrowing + £25,000 deposit it puts more than half the homes in 7 whole regions at a price affordable to a couple on the minimum wage and also some percentage of homes in the other 5 regions are also affordable for our couple on the min wage

So whats the problem?

And again, these are people on the very lowest full time earnings possible while most people earn about twice that figure

Mortgage lending on residential and BTL is down though? Maybe people don`t earn as much as the official figures suggest, maybe they are becoming debt averse , maybe aliens are eating people while the masses make jokes about Donald`s hair................?

[Quicksilver]

 

9 minutes ago, Quicksilver said:

You have a real cheek!

Where do you pull you ******** stats from? Using your joint income (£37440) split evenly between a couple, with a minimal 1% oension contribution by law:

Take home is £13709 each or £27418 a full £6K less than you claim.

 

Corrections

Mistake on entries in website calculator:

Actual joint income would be £31646 or £2637 pcm

35% of that is £923

They could borrow £150K on that.

If this is Birmingham though, the MEDIAN property on rightmove is priced at £300,000

[Ah-so]

10 minutes ago, Quicksilver said:

You have a real cheek!

Where do you pull you ******** stats from? Using your joint income (£37440) split evenly between a couple, with a minimal 1% oension contribution by law:

Take home is £13709 each or £27418 a full £6K less than you claim.

 

 

Your calculator does not have a tax free allowance. Tax is not charged on about the first 800 each month. 

I think his figures are about right - a couple earning nearly £40,000 between then can borrow close to 4 times their joint salary. 

[Bland Unsight]

1 hour ago, RushRoad said:

What bit is wrong?

Which particular part of "Trolls die if you don't feed them" are you struggling to understand?

I'll get my hands dirty running numbers, but if every time I check your numbers I find ignorance and idiocy then the outcome of running the numbers just makes me more and more confident that you are just a figure of fun to be worked for laughs for as long as you last.

Nothing personal.

Good luck with the leveraged bets.