If you think IRs are bad wait for lower LTVs

[Twenty Something]

5 minutes ago, NoHPCinTheUK said:

Unfortunately you're painting a rosy picture of a country where buyers can easily find thousands of pounds in a market which is rapidly deteriorating. The reality is that most households will need to come to the conclusion that their borrowing capacity has decreased and sellers will need to adjust their expectations. 

No I'm not. I am trying to understand your maths. I have put in the examples that buyer 1 might not be able to find the extra deposit, and therefore the bank will lend him nothing. That is why I have said it becomes a binary yes / no answer. You either have the deposit, or you don't. You can either meet the increased LTV demand if it happens or you can't. What I am demonstrating is why you are wrong in what you originally posted as the amount that a bank will lend you is a function of your income multiple not the LTV. Maybe you can walk me through your sums as I have done to show me how you have arrived at your conclusion? 

[JDI]

18 minutes ago, Twenty Something said:

But why are you only able to borrow half as much? How much the bank will lend is tied into your salary multiple - usually 4.5 times single or joint. As I said above, if the banks withdraw all their high LTV products then you can borrow £0 unless you can find the deposit. If you can find the deposit then you can borrow. What you can borrow stays the same in both scenarios. If you can find more for a deposit out of your savings then how does that impact what the bank will lend? 

Take a 200k property and:

Borrower 1 with 10k deposit and 15k per year earnings - can't buy at 95% LTV (or any LTV)

Borrower 2 with 10k deposit and 50k per year earnings - can buy at 95% LTV quite happily with 190k loan

Take the same property and they get rid of 95% LTV and say you must have 80%

Borrower 1 still cannot buy

Borrower 2 now needs to find a 40k deposit, but what he needs to borrow has fallen to 160k. They can either find this extra 30k deposit or they can't. If they can, the bank will still happily lend them the money as with a 50k salary that is easily within affordability, and if they can't the bank will lend them nothing. So you have a binary yes / no. 

So you are correct that you have to find ever increasing deposit amounts, but how does this half what you can borrow? In other words, the LTV doesn't impact the number that the bank will lend based off 4.5 x your salary. 

I agree that the amount that the bank will lend doesn't half with different LTVs, maybe a better term would be spend rather than borrow, for example:

90% LTV with a £30k deposit and you can spend £300k

80% LTV and you can only spend £150k

70% LTV and it’s £100k.

Edited October 5, 2022 by Just_Do_It
Corrected 70% LTV calculation

[dances with sheeple]

4 hours ago, Lagarde's Drift said:

Hehehe margin call when it comes to refix Ur mortgage, or go onto SVR! Lubbly jubbly!

Yes, that will put the wolf in the chicken coop for sure.

[Social Justice League]

See, if people could move away from borrowing worthless, printed out of thin air fiat, the world would be a better place.

Why would someone give up the best years of their life to a bank?

Makes zero sense but it also shows us how utterly brainwashed the population have become over the past 70 years.

Borrowing to appear wealthy is the greatest scam of all, yet most fall for it and pay with their life.

[fellow]

Ok, now we have established what the OP is talking about, here's some evidence it may be starting to happen:

Is the 95% LTV mortgage set to disappear?

https://www.financialreporter.co.uk/is-the-95-ltv-mortgage-set-to-disappear-brokers-react.html

[Twenty Something]

1 minute ago, fellow said:

My example applies if you had exactly enough for the 10% deposit in the bank and no more money available. This was an extreme example  just for simplicity to explain the general point of the thread.

Obviously if you have more money then other factors come into play.

But you haven't explained the point of the thread. If you had a 10% deposit and no more money then you clearly can't borrow anything if LTV's are raised to 85% or less. You've said:

53 minutes ago, fellow said:

I can't believe how many people have completely missed the point of this thread.

Simply put, the OP is saying  if you are forceably restricted to an 80% LTV, you have to either find twice the deposit or borrow half as much than if you could borrow at 90% LTV (or a combination of the two).

So, please show me how being restricted to a 80% LTV means that you can only borrow half as much? Where is the correlation between the LTV and affordability which is based off salary multiples, expenses and so on? 

[Twenty Something]

11 minutes ago, Gurgle said:

The salary multiple is irrelevant because you only have 30k as a down payment.  It is the LTV which limits how much you can borrow in this instance, not your salary.  If you have 30k and the max LTV the bank will lend is 70% then you can only borrow 70k making a total of 100k.  Doesn't matter if you earn a million, your borrowing is limited by the LTV & your deposit.

Which is exactly what I am saying - it is a binary yes / no. That isn't what was posted though. It was proposed that the amount you can borrow halves when you drop from an LTV of 90% - 80%. An extra 10% deposit in essence means your borrowing ability drops from 300k to 150k. That is nonsense. What am I missing here? 

[Gurgle]

Just now, Twenty Something said:

Which is exactly what I am saying - it is a binary yes / no. That isn't what was posted though. It was proposed that the amount you can borrow halves when you drop from an LTV of 90% - 80%. An extra 10% deposit in essence means your borrowing ability drops from 300k to 150k. That is nonsense. What am I missing here? 

I think you're correct.  Its just about wording, English being a very flexible and therefore ambiguous language at times   

[Twenty Something]

8 minutes ago, fellow said:

Ok, now we have established what the OP is talking about, here's some evidence it may be starting to happen:

Is the 95% LTV mortgage set to disappear?

https://www.financialreporter.co.uk/is-the-95-ltv-mortgage-set-to-disappear-brokers-react.html

We've established what the OP was talking about!?

[NoHPCinTheUK]

12 minutes ago, Twenty Something said:

Which is exactly what I am saying - it is a binary yes / no. That isn't what was posted though. It was proposed that the amount you can borrow halves when you drop from an LTV of 90% - 80%. An extra 10% deposit in essence means your borrowing ability drops from 300k to 150k. That is nonsense. What am I missing here? 

It does if you only have 30k to put upfront. Then we may agree upon the fact that someone has 150k in a cavity wall but all things being equal, numbers have to match somehow. 

[NoHPCinTheUK]

4 minutes ago, Twenty Something said:

We've established what the OP was talking about!?

Ok, so your understanding is that people are going to find 150k spare cash if banks offer them only 80pc LTVs from 90pc? 

[NoHPCinTheUK]

It is not a binary choice. The market won't freeze until people will be able to borrow again these multiples. I do not really understand where the idea that prices will stay high forever comes from. 

[Gurgle]

I think the debate here is that the OP said that lower LTVs limit what you can borrow.  @Twenty SomethingIs saying that is not correct, what you can theoretically borrow is based on your income.  Both are correct semantically.  What I’m saying is that the amount your salary theoretically allows you to borrow is irrelevant because your deposit and LTV restrict what you can borrow regardless of your income.  I think it’s all in your interpretation of the phrase “how much you can borrow”

[Pmax2020]

1 hour ago, fellow said:

I can't believe how many people have completely missed the point of this thread.

Simply put, the OP is saying  if you are forceably restricted to an 80% LTV, you have to either find twice the deposit or borrow half as much than if you could borrow at 90% LTV (or a combination of the two).

Therefore, if banks started demanding bigger deposits across the board, this would, by far, have the biggest downward pressure on the market than anything else.

This becomes more likely to happen once prices start to fall as banks don't want to risk losing money from the borrower going into negative equity before being repossessed.

The OPs point completely went over my head too.

Do we really think there will be a time where you must have 70% LTV? Or 80%? That’s never happening. 

[fellow]

4 minutes ago, Twenty Something said:

But you haven't explained the point of the thread. If you had a 10% deposit and no more money then you clearly can't borrow anything if LTV's are raised to 85% or less. You've said:

So, please show me how being restricted to a 80% LTV means that you can only borrow half as much? Where is the correlation between the LTV and affordability which is based off salary multiples, expenses and so on? 

If you have exactly £20k, at 80% LTV you can only borrow a MAXIMUM of £80k on a £100k house (20 is 20% of 100), regardless of whether you can afford a bigger loan. At 90% LTV that £20k will allow you borrow a MAXIMUM of £180k on a £200k house (20 is 10% of 200) but does not mean you will get the loan if this is above your affordability criteria.

The point is, the doubling of the deposit requirement halves the maximum value of the house you can purchase with the same deposit. This is a mathematical fact.

[Twenty Something]

4 minutes ago, NoHPCinTheUK said:

Ok, so your understanding is that people are going to find 150k spare cash if banks offer them only 80pc LTVs from 90pc? 

No I'm not saying that someone can find 150k of spare cash lying around. You are not answering the question. Your original post is below:

8 hours ago, NoHPCinTheUK said:

The final nail in the coffin will be lenders lowering LTVs ratios on the market. 

90% LTV with a £30k deposit and you can borrow £300k

80% LTV and you can only borrow £150k

70% LTV and it’s £90k. 
 

 

 

When the bank is assessing what it will lend you, it is looking at your salary, debts and affordability. It will say that it will lend you up to <whatever> amount based upon your salary of <whatever> x 4.5 as a general rule of thumb. This number does not change whatever the LTV amount is. To use your example above:

If the bank will lend you 300k then you have a salary of £66,666 per annum. If you are trying to buy a 300k house, you will need:

@90% LTV a deposit of £30,000 and then a mortgage of £270,000 which is fine.

@80% LTV a deposit of £60,000 and then a mortgage of £240,000 which is even more fine.

@70% LTV a deposit of £90,000 and then a mortgage of £210,000 which is even more more fine.

If you cannot find the extra money for the deposit, then you can't borrow at all. So, if you have a 10% deposit and the bank demands 20% then you can borrow nothing. You can't borrow half. You can't borrow a quarter, you can't borrow anything. What I am asking (again) is for you to show where the correlation is between LTV's falling and what you can borrow halving. 

 

[Twenty Something]

12 minutes ago, fellow said:

If you have exactly £20k, at 80% LTV you can only borrow a MAXIMUM of £80k on a £100k house (20 is 20% of 100), regardless of whether you can afford a bigger loan. At 90% LTV that £20k will allow you borrow a MAXIMUM of £180k on a £200k house (20 is 10% of 200) but does not mean you will get the loan if this is above your affordability criteria.

The point is, the doubling of the deposit requirement halves the maximum value of the house you can purchase with the same deposit. This is a mathematical fact.

Ok agreed when put like that - I'll go with @Gurgle's summary of the situation as 'semantics'. If you have less ability to leverage your deposit then it will limit your loan size. 

[fellow]

14 minutes ago, Pmax2020 said:

The OPs point completely went over my head too.

Do we really think there will be a time where you must have 70% LTV? Or 80%? That’s never happening. 

Probably not that extreme but bear in mind some banks temporarily pulled all mortgage products above 85% LTV last week.

The point is, if all banks did this or even removed just the 95% LTV, this would have a bigger impact on the market than most people realise.

In a falling market, banks will start asking for bigger deposits to offset the increased risk, and this in turn will cause prices to fall further. This is just the general idea the OP was getting at.

[NoHPCinTheUK]

Just now, fellow said:

Probably not that extreme but bear in mind some banks temporarily pulled all mortgage products above 85% LTV last week.

The point is, if all banks did this or even removed just the 95% LTV, this would have a bigger impact on the market than most people realise.

In a falling market, banks will start asking for bigger deposits to offset the increased risk, and this in turn will cause prices to fall further. This is just the general idea the OP was getting at.

This is exactly what would happen without external factors. As you said it's a mathematical fact. 

[fellow]

12 minutes ago, Twenty Something said:

Ok agreed when put like that - I'll go with @Gurgle's summary of the situation as 'semantics'. If you have less ability to leverage your deposit then it will limit your loan size. 

This ^

Leverage is the key word. This would particularly hit the highly leveraged BTL market.

[Mandalorian]

Not sure why people were struggling with the OP's post.

Lower LTVs available mean you can't borrow as much.  Likely to lead to lower house prices.

Why so difficult?

[Gurgle]

5 minutes ago, Mandalorian said:

Not sure why people were struggling with the OP's post.

Lower LTVs available mean you can't borrow as much.  Likely to lead to lower house prices.

Why so difficult?

I thought we’d settled this.  Or are we about to go round the circle again?

[Lagarde's Drift]

4 hours ago, Twenty Something said:

Ok agreed when put like that - I'll go with @Gurgle's summary of the situation as 'semantics'. If you have less ability to leverage your deposit then it will limit your loan size. 

Now you get it. It isn't just about whether a borrower can afford the monthly payments at x%. The total amount the bank is willing to lend based on the initial deposit also matters. This is the origin of BOMAD, those that couldn't save quickly enough tognet 10k or 30k needed a top up from parents to put down a big enough deposit so they could buy their bouse. 

In a world with falling house prices those that bought in the last year or two may have bad shocks coming to them as they find that their initial 80% LTV 2 yr fix at 2% has become a 90% LTV at 6% with all that implies. In a catastrophic crash it would become a >100% LTV ie neg equity.

Edited October 6, 2022 by Lagarde's Drift

[Twenty Something]

On 06/10/2022 at 02:00, Lagarde&#x27;s Drift said:

Now you get it. It isn't just about whether a borrower can afford the monthly payments at x%. The total amount the bank is willing to lend based on the initial deposit also matters. This is the origin of BOMAD, those that couldn't save quickly enough tognet 10k or 30k needed a top up from parents to put down a big enough deposit so they could buy their bouse. 

In a world with falling house prices those that bought in the last year or two may have bad shocks coming to them as they find that their initial 80% LTV 2 yr fix at 2% has become a 90% LTV at 6% with all that implies. In a catastrophic crash it would become a >100% LTV ie neg equity.

I get it now that we have unpicked the original post yes - far from alone on this thread...There's going to be some pain. I guess we have to wait and see how much depending on how bad things get ranging from the armageddon that this forum wants to a small bump in the road. 

[Mark1973_5]

On 05/10/2022 at 21:02, fellow said:

The point is, the doubling of the deposit requirement halves the maximum value of the house you can purchase with the same deposit. This is a mathematical fact.

This ^^^^

If your affordability reduces (regardless of whether that is due to tightening LTV requirements, increased IRs, or a drop in your income available to allocate to housing) then the maximum value of the house you can purchase is reduced. This is a mathematical fact. Agreed

But almost every poster on this forum interprets this as "the house I was looking at must therefore sell for cheaper".

Nobody seems to acknowledge the alternative, far more likely, scenario of that purchaser having to set their sights on a smaller, lower quality or more remote house within their new affordability criteria.

That house you were originally looking at will now be in-scope for someone richer than you whose affordability will also have reduced, and is now 'slumming it' by bidding for the sorts of places you used to be able to afford.

At the very bottom of this inverse chain are people who can no longer afford any house, anywhere at all. They'll be next year's new members on this forum. And so it goes on ...

Edited October 8, 2022 by Mark1973_5
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