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Half of all mortgages are stretching owners to the limit

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If ever I get p**sed off with the state of our corrupt housing market I just remember there is not an atom of DNA in me that is concerned about being over stretched with debt, and that is a lot of quality nights sleeping and some kind of life. OK, there is the odd concern that things will never get better, well so be it, I am not spending years of my life with my head in my hands at 3 am in the morning worried to death about debt and knowing everyday I have to let my boss screw me at his command  because he/she knows that they can out of fear of losing just one months wages. I would have found it impossible to start my business if I had a massive mortgage to deal with as well.

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But i've been promised that these were ending MMR and Basel 3 stop this. It's time we ignored people who peddle these mistruths the facts are well against them.

The mortgage taps are well on. I was scared at what i could borrow when I applied and what others were happy to do (in the end the mortgage needed was a third of my annual salary (or the minimum the bank would lend as a mortgage and therefore get a HTB isa bonus). Hey 4.5 times joint salary at 40 was acceptable and celebrated by some. 4.5 times peak earnings WTF!

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Not to be antagonistic - but after years of watching them pump and pump liquidity in to the market and having my savings stuffed with inflation we bought a house just over a year ago. Our mortgage rate is about half the inflation rate. We borrowed as much as we could at the time but have since both had pay rises and made several improvements to the house (it was a project).

We were tested to see if we could afford a mortgage rate of 10% (which we passed but tbh it would suck!) but I sleep better now knowing that the wallopping debt we took on is being inflated away and that we're responding to the conditions that have been set. My natural preference is with posters like @localhero1983 and wish to have zero debt and be financially independent, and that is what I'm working towards.

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8 hours ago, nome said:

The headline does not match the content:

A record 47 per cent of mortgages in the third quarter of 2018 went to customers on what the Bank of England calls ‘high loan to income multiples’.

For a couple, this means borrowing more than three times their annual income – or £120,000 on a combined salary of £40,000.

A single buyer falls into the same category if they borrow four times their earnings, equal to someone with a £30,000 salary taking out £120,000-plus.

Borrowing this much could bring trouble if interest rates rise from their current historically low rates. 

I read this as BoE recording the MMR limits and tracking if the poeple borrowing at the limits can cope with their mortgage.

If these people then struggle, Id guess the BoE would ratched down the MMR limits further.

 

 

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8 minutes ago, adarmo said:

Not to be antagonistic - but after years of watching them pump and pump liquidity in to the market and having my savings stuffed with inflation we bought a house just over a year ago. Our mortgage rate is about half the inflation rate. We borrowed as much as we could at the time but have since both had pay rises and made several improvements to the house (it was a project).

We were tested to see if we could afford a mortgage rate of 10% (which we passed but tbh it would suck!) but I sleep better now knowing that the wallopping debt we took on is being inflated away and that we're responding to the conditions that have been set. My natural preference is with posters like @localhero1983 and wish to have zero debt and be financially independent, and that is what I'm working towards.

Theyve let debt be pumped into the housing market.

Its an issue as IR adjust.

 

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Just to make it clear I am not adverse to debt or even mortgage debt, but not at any cost. So many people in recent years have been caught in what I class as one of greatest banking criminal traps of all time. People in the UK more than anything what their own home and are willing to do just about anything to get there, and like lions knowing a antelope will go to the waterhole out of desperation  the banks know the same thing with people in the UK. I know I will be laughed at, but this big confidence trick has so many willing players from the big leaders of the banks to government to the low lives such as Kirstie Allsopp, they have all played their parts.

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45 minutes ago, Pebbles said:

But i've been promised that these were ending MMR and Basel 3 stop this. It's time we ignored people who peddle these mistruths the facts are well against them.

The mortgage taps are well on. I was scared at what i could borrow when I applied and what others were happy to do (in the end the mortgage needed was a third of my annual salary (or the minimum the bank would lend as a mortgage and therefore get a HTB isa bonus). Hey 4.5 times joint salary at 40 was acceptable and celebrated by some. 4.5 times peak earnings WTF!

As per the article:

Quote

A record 47 per cent of mortgages in the third quarter of 2018 went to customers on what the Bank of England calls ‘high loan to income multiples’.

For a couple, this means borrowing more than three times their annual income – or £120,000 on a combined salary of £40,000.

A single buyer falls into the same category if they borrow four times their earnings, equal to someone with a £30,000 salary taking out £120,000-plus.

It's actually compelling evidence of the effectiveness of MMR that 3x joint and 4x single are considered high loan to income.

Pre-MMR there was no income verification for over half of new mortgages:

image.png.50049a6a4d9bed5e4358111e8690eaa0.png

Source

image.png.3248a5001a5c38fa01f33cad2bf44024.png

(Same source as above)

Pre-crisis, half of employed people were taking out loans where the income wasn't verified.

If you think that the mortgage market hasn't changed, try borrowing interest-only at 85% LTV at five times earnings on an income of £35k today. Perfectly possible pre-2008 (this 2003 BBC documentary gives a flavour of how self-certification led to LTIs as measured against the borrowers actual income which make 4x look decidedly cautious).

 

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12 minutes ago, spyguy said:

Theyve let debt be pumped into the housing market.

Its an issue as IR adjust.

 

OK - but the banks were given liquidity ('cash') and that is what enabled the lending in the first place. Let us say 'easy credit' then?

When will those rates adjust? We're following America? Is America headed for a recession?

I personally think we're going to hit the next recession well before rates get back to histrionic norms (which in itself is an interesting point because depending on how far you look back rates have been fairly low - but not this low). 

When (not if) we hit the next recession I wonder what tools they will use to stimulate? Or maybe they wont this time.

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17 minutes ago, adarmo said:

OK - but the banks were given liquidity ('cash') and that is what enabled the lending in the first place. Let us say 'easy credit' then?

When will those rates adjust? We're following America? Is America headed for a recession?

I personally think we're going to hit the next recession well before rates get back to histrionic norms (which in itself is an interesting point because depending on how far you look back rates have been fairly low - but not this low). 

When (not if) we hit the next recession I wonder what tools they will use to stimulate? Or maybe they wont this time.

Dont think they can.

 

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Coincidentally, saw this on Twitter this morning: Credit where it’s due: A historical, theoretical and empirical review of credit guidance policies in the 20th century and it includes this figure:

image.png.cb89c5d3de1dd8ffcaaae0f17c2cbc4a.png

Might be worth a read in order to situate MMR and Basel 3 in a broader context.

Edited by Bland Unsight

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58 minutes ago, Bland Unsight said:

As per the article:

It's actually compelling evidence of the effectiveness of MMR that 3x joint and 4x single are considered high loan to income.

Pre-MMR there was no income verification for over half of new mortgages:

image.png.50049a6a4d9bed5e4358111e8690eaa0.png

Source

image.png.3248a5001a5c38fa01f33cad2bf44024.png

(Same source as above)

Pre-crisis, half of employed people were taking out loans where the income wasn't verified.

If you think that the mortgage market hasn't changed, try borrowing interest-only at 85% LTV at five times earnings on an income of £35k today. Perfectly possible pre-2008 (this 2003 BBC documentary gives a flavour of how self-certification led to LTIs as measured against the borrowers actual income which make 4x look decidedly cautious).

 

do you actually believe any of these chit graphs you keep posting under different names.  There are no rules NONE ! rules are there for morons to believe there is some kind of order.   The number one concern is to keep lending to oblivion regardless of outcome some will keep paying some will go under. 

people with high savings and non home owning don`t seem to exist in the UK only on this site.  

 

https://www.financialreporter.co.uk/mortgages/darlington-bs-to-lend-at-6x-income-on-new-range.html

https://www.financialreporter.co.uk/mortgages/barclays-loosens-5x-income-affordability.html

https://www.dailymail.co.uk/news/article-6427491/Supersized-mortgages-back.html

https://www.trinityfinancialgroup.co.uk/article/metro-bank-raises-mortgage-income-multiple-to-55-times-salary-for-professionals

 

 

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11 minutes ago, longgone said:

people with high savings and non home owning don`t seem to exist in the UK only on this site. 

We are a rare breed.  Its shows up if you check your credit rating; being a renter throws the algorithm despite all the other parameters being positive.

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FYI, some of the best rates below are not achievable,
lender click bait unless you are an existing customer.

https://www.moneysavingexpert.com/mortgages/best-buys/

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Well, the thing is when the real inflation is >5% and if I am offered a mortgage at 2% fixed for 5 year, it does make sense to borrow as much as I can. 

In my case, I am putting my saving elsewhere which earns 4 to 5% a year. If the mortgage rate goes up to 10%, as long as my saving is earning more, I will keep borrowing. If it doesn't, well, I will then pay off my mortgage.

That's how people made themselves rich via cheap credit, right? 

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1 hour ago, dougless said:

We are a rare breed.  Its shows up if you check your credit rating; being a renter throws the algorithm despite all the other parameters being positive.

How would savings have anything to do with credit rating ? Surely being an obdient slave with existing  credit is where it is based on. After all I could go on a spending spree and blow the lot after taking out a mega loan.

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Justin Modray, of financial advice group Candid Money, said: ‘If people are stretching themselves to get on the housing ladder now, it’s probably never going to be more affordable than this.

Doesn’t it mean people are desperate to buy a house and will stretch themselves to do so or want the largest house they can possibly afford? And ‘affordable’ doesn’t mean good value.

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16 minutes ago, peter_2008 said:

Well, the thing is when the real inflation is >5% and if I am offered a mortgage at 2% fixed for 5 year, it does make sense to borrow as much as I can.  ...

Yes.

I wonder, in the current climate, what is the minimum rate a lender could atually offer via fractional reserve banking?
To break even, the lender needs to cover costs of operation, cost of the original 100k capital and cover any repayment defaults and cover the real cost of true inflation.

Say a lender has access to 100k of capital and chooses to extend credit to 10 mortgages of 100k at 2%, effectively per year the lender will recieve 10x 2% interest, plus 10x capital repayments on the original 100k (say ~30K/pa before costs?).
So this is why you can now often borrow below the inflation rate or is this basic example just too simplistic?

 

 

 

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10 minutes ago, longgone said:

How would savings have anything to do with credit rating ? Surely being an obdient slave with existing  credit is where it is based on. After all I could go on a spending spree and blow the lot after taking out a mega loan.

You are right, its not about having savings but it is about managing things like credit cards, loans etc and not having CCJ's against you.  The one criterion that renters don't have is 'property' and you fall on that hurdle.....

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2 hours ago, longgone said:

do you actually believe any of these chit graphs you keep posting under different names.  There are no rules NONE ! rules are there for morons to believe there is some kind of order.   The number one concern is to keep lending to oblivion regardless of outcome some will keep paying some will go under. 

people with high savings and non home owning don`t seem to exist in the UK only on this site.  

 

https://www.financialreporter.co.uk/mortgages/darlington-bs-to-lend-at-6x-income-on-new-range.html

https://www.financialreporter.co.uk/mortgages/barclays-loosens-5x-income-affordability.html

https://www.dailymail.co.uk/news/article-6427491/Supersized-mortgages-back.html

https://www.trinityfinancialgroup.co.uk/article/metro-bank-raises-mortgage-income-multiple-to-55-times-salary-for-professionals

 

 

There are rules and pasting a few random links doesn't change that. 

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  • 295 Brexit, House prices and Summer 2020

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      • down 5% +
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