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FT: Lenders Quickly Loosening Criterea For Bigger Loans

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http://www.ft.com/cms/s/0ef83766-060a-11db...00779e2340.html

House hunters offered higher mortgages

Published: June 27 2006 22:02 | Last updated: June 27 2006 22:02

House hunters are being lent larger multiples of their incomes to finance their purchases as banks and building societies shift towards more flexible forms of lending.
Ray Boulger, technical director at John Charcol, the mortgage brokers, said: “Lenders are recognising that this gives a more realistic assessment of what is a reasonable loan. Relying on income multiples was often proving too conservative.”
According to the Council of Mortgage Lenders,
the average mortgage sold in April was 3.04 times the borrower’s income, the highest level for 20 years.
But individuals with strong credit histories can now borrow much larger amounts.
Northern Rock offers one of the highest income multiples at 5.9 times
on its Together mortgage for customers with strong credit ratings and high incomes.
Other lenders, such as Nationwide, Alliance & Leicester, Halifax and Standard Life also use the affordability model.
Melanie Bien of Savills Private Finance said the change in lending was necessary given the rapid rise in house prices compared with slower earnings growth
.
:o
“People were having problems affording a property when lenders were taking an approach based strictly on income multiples. They
just could not borrow enough
,” she said. There has, however, been some concern that these types of deal will tempt borrowers into taking on more debt than they can manage, especially at a time when personal bankruptcies and repossessions are rising.
But mortgage brokers point out that borrowers are enjoying considerably lower interest rates than they were five years ago, so are able to service higher loans with similar monthly repayments.

This says it all:

But mortgage brokers point out that borrowers are enjoying considerably lower interest rates than they were five years ago, so are able to service higher loans with similar monthly repayments.

So what happens as IR are now headed up? :o

The Crash is going to be big, long and deep folks.

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Guest Cletus VanDamme

According to the Council of Mortgage Lenders, the average mortgage sold in April was 3.04 times the borrower’s income, the highest level for 20 years. But individuals with strong credit histories can now borrow much larger amounts.

I find this statement incredible. If the avg amount borrowed is still only 3.04 times income, surely the crash is way off? I find the figure hard to believe - if avg prices are now around 6 times income, how come borrowing is only 3 x income?

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The criteria for larger lending has been a long way behind that of smaller mortgages anyway.

If you earn £100K a year, you have more spare than if you earn £20K, and moreso if you earn £200K and even more if you earn £300K etc.

And you are far more likely to have a fat deposit so lending risk is lower. In fact, there's a whole raft of reasons why it's probably better to extend multiples at the top end than the bottom.

If I am earning £125K a year and want to borrow £500K to buy a property at £600K, surely that's less risk to a bank than if I am earning £25K and want to borrow £100K to buy a property at £120K..... ? (assuming continued same employment).

Edited by Rachman

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I find this statement incredible. If the avg amount borrowed is still only 3.04 times income, surely the crash is way off? I find the figure hard to believe - if avg prices are now around 6 times income, how come borrowing is only 3 x income?

Perhaps it means that, significantly, many of those April loans were to people who were above average earners.

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I find this statement incredible. If the avg amount borrowed is still only 3.04 times income, surely the crash is way off? I find the figure hard to believe - if avg prices are now around 6 times income, how come borrowing is only 3 x income?

This figure will incorporate the swaths of liars, who purport to earn £60K when applying for their mortgage.

I doubt that fully explains why it is so low though.

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Irresponsible lending is the key here. Banks have had the tool’s in place for years to ensure that people don’t over extend to buy property, but now, with the encouragement of the Bank of England for one, they have shirked this in favour of ensuring that they essentially have a massive portfolio of part-paid for, high risk property.

Remember the adage that you can’t go wrong investing in bricks and mortar? Well, through eager and ill-informed buyers that is exactly what banks have done. If / when the keys get handed back it’s the banks that will sit tight and wait for the right environment to start the fleecing all over again.

I can’t help but feel that this whole situation has been engineered from the start. 4 x salary multiple is madness when the rate is variable, and no one in their right mind should get in to that kind of burden.

As Realist Bear keeps posting, all of the elements are there now, and it will only be a matter of time before IR hikes in other countries begins to knock the UK market. If I had bought in 2004 on a massive multiple I’d be very worried at the moment.

As it is, I’m so priced out that it’s almost one less thing to worry about. Buying property is only worth while if you can afford it, and unless you are earning well, have saved well, are looking to the very long term, or have other accommodation needs that can’t be dealt with by renting, then buying in seems a little blinkered to me.

Ho hum, the ride continues…

Cheers,

OD

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House hunters are being lent larger multiples

Cmon Dr Bubb, remember I said this would happen when you were spouting a credit crunch was on the way! :lol:

Sorry, I really dont want to gloat, no one likes a gloater, but I told you this would happen!

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I find this statement incredible. If the avg amount borrowed is still only 3.04 times income, surely the crash is way off? I find the figure hard to believe - if avg prices are now around 6 times income, how come borrowing is only 3 x income?

Maybe it includes people moving, remortgaging etc. I doubt its just for FTBers.

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I find this statement incredible. If the avg amount borrowed is still only 3.04 times income, surely the crash is way off? I find the figure hard to believe - if avg prices are now around 6 times income, how come borrowing is only 3 x income?

I have to agree, the 3.04 figure sounds like an absolute whopper of a lie.

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I find this statement incredible. If the avg amount borrowed is still only 3.04 times income, surely the crash is way off? I find the figure hard to believe - if avg prices are now around 6 times income, how come borrowing is only 3 x income?

Is it because a lot of second, third, fourth etc. time buyers just need small mortgages to move from one house to the other?

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CML figure of 3.04 is probably based on joint applications.

I also agree to some extent with Rachmans point re higher incomes being able to sustain higher lending multiples. We were offered some ludicrously high multiples. If I wasn't so level headed and disciplined we could have bought a huge millstone. I'd prefer to drink fine wines and spend money in other ways than via interest to a bank.

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http://www.ft.com/cms/s/0ef83766-060a-11db...00779e2340.html

House hunters offered higher mortgages

Published: June 27 2006 22:02 | Last updated: June 27 2006 22:02

House hunters are being lent larger multiples of their incomes to finance their purchases as banks and building societies shift towards more flexible forms of lending.
Ray Boulger, technical director at John Charcol, the mortgage brokers, said: “Lenders are recognising that this gives a more realistic assessment of what is a reasonable loan. Relying on income multiples was often proving too conservative.”
According to the Council of Mortgage Lenders,
the average mortgage sold in April was 3.04 times the borrower’s income, the highest level for 20 years.
But individuals with strong credit histories can now borrow much larger amounts.
Northern Rock offers one of the highest income multiples at 5.9 times
on its Together mortgage for customers with strong credit ratings and high incomes.
Other lenders, such as Nationwide, Alliance & Leicester, Halifax and Standard Life also use the affordability model.
Melanie Bien of Savills Private Finance said the change in lending was necessary given the rapid rise in house prices compared with slower earnings growth
.
:o
“People were having problems affording a property when lenders were taking an approach based strictly on income multiples. They
just could not borrow enough
,” she said. There has, however, been some concern that these types of deal will tempt borrowers into taking on more debt than they can manage, especially at a time when personal bankruptcies and repossessions are rising.
But mortgage brokers point out that borrowers are enjoying considerably lower interest rates than they were five years ago, so are able to service higher loans with similar monthly repayments.

This says it all:

But mortgage brokers point out that borrowers are enjoying considerably lower interest rates than they were five years ago, so are able to service higher loans with similar monthly repayments.

So what happens as IR are now headed up? :o

The Crash is going to be big, long and deep folks.

They are probably aware that many more people want to buy second homes now that councils will find tenants for them & pay the rents & finance the repairs, then return the property later.

BTL is suddenly less risky but of course the secondary wealth tax will be introduced soon.

GB wants his slice.

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They are probably aware that many more people want to buy second homes now that councils will find tenants for them & pay the rents & finance the repairs, then return the property later.

BTL is suddenly less risky but of course the secondary wealth tax will be introduced soon.

GB wants his slice.

What's this about councils finding tenants, paying rents and financing repairs?

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The criteria for larger lending has been a long way behind that of smaller mortgages anyway.

If you earn £100K a year, you have more spare than if you earn £20K, and moreso if you earn £200K and even more if you earn £300K etc.

And you are far more likely to have a fat deposit so lending risk is lower. In fact, there's a whole raft of reasons why it's probably better to extend multiples at the top end than the bottom.

If I am earning £125K a year and want to borrow £500K to buy a property at £600K, surely that's less risk to a bank than if I am earning £25K and want to borrow £100K to buy a property at £120K..... ? (assuming continued same employment).

I would say that the first example is exactly 5 times the risk of the second example.

By analogy, putting £100 on some horse with odds of 33:1 is exactly 5 times the risk level of £20 on the same horse.

frugalista

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I find this statement incredible. If the avg amount borrowed is still only 3.04 times income, surely the crash is way off? I find the figure hard to believe - if avg prices are now around 6 times income, how come borrowing is only 3 x income?

possibly lots of BTL lowering the avg figure as well as people using large deposits?

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This is great news! The more money that's flushed down the property toilet now the less there will be left outside property when it has crashed, so the lower prices will fall before any buyers are found. I think I'll just sit back, put my feet up, and enjoy knowing that the only interest connected with my finances is what the bank's paying me :lol:

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  • 301 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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