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Times: Irresponsible Lending Frenzy, 7 X Salary Madness

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http://business.timesonline.co.uk/article/...2305269,00.html

Times Online August 09, 2006

First-time buyers borrow more than ever

By Rebecca O’Connor

Mortgage lenders have come under attack from leading consumer and debt counselling groups for putting thousands of cash-strapped first-time buyers at risk of serious debt problems by lending them too much money.
*
The criticisms came as new figures showed that the size of home loans in relation to the incomes of aspiring homeowners has reached record levels. The Council of Mortgage Lenders (CML) says the average first time buyer now receives a mortgage worth 3.21 times their salary, up from 2.4 times income five years ago.
A slew of new deals promising aspiring homeowners
up to seven times income
were blamed for making debt seem more acceptable at a time when householders are already becoming increasingly overstretched. Millions of homeowners are already facing sharp increases to their monthly outgoings in the wake of last week’s quarter point Bank of England base rate rise and soaring energy bills.
Mike Naylor, principle researcher at Which, the consumers association, said: "Not only are people prepared to borrow more, banks and building societies are also prepared to lend more, and not always responsibly. The more that big debts become acceptable, the greater the risk to borrowers if interest rates continue to rise, if house prices fall, and if unemployment goes up further."
Sue Edwards, senior social policy officer, for Citizens Advice, said: "We are already dealing with well over a million new debt problems a year, and are beginning to see more people with mortgage arrears facing the threat of repossession.

Merv has just said there is no problem in relation to secured debt against houses. Ivory tower naivete'?

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Merv has just said there is no problem in relation to secured debt against houses. Ivory tower naivete'?

More likely he is not getting the data.

The CML stated in there report yesterday, I think, that it was unlikely that repossessions would increase much further as the number falling into arrears had stabilised. Of course that statement is some weekened before it was even published thanks to the BoE hike, and also it assumes that the members of the CML do not tighten up on there debt collection policies. Classic missinformation that the BoE should be able to see straignt through, but if they (the MC) get fed enough of this rubbish then it will be very difficult to judge what is actually happening.

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http://business.timesonline.co.uk/article/...2305269,00.html

Times Online August 09, 2006

First-time buyers borrow more than ever

By Rebecca O’Connor

Mortgage lenders have come under attack from leading consumer and debt counselling groups for putting thousands of cash-strapped first-time buyers at risk of serious debt problems by lending them too much money.
*
The criticisms came as new figures showed that the size of home loans in relation to the incomes of aspiring homeowners has reached record levels. The Council of Mortgage Lenders (CML) says the average first time buyer now receives a mortgage worth 3.21 times their salary, up from 2.4 times income five years ago.
A slew of new deals promising aspiring homeowners
up to seven times income
were blamed for making debt seem more acceptable at a time when householders are already becoming increasingly overstretched. Millions of homeowners are already facing sharp increases to their monthly outgoings in the wake of last week’s quarter point Bank of England base rate rise and soaring energy bills.
Mike Naylor, principle researcher at Which, the consumers association, said: "Not only are people prepared to borrow more, banks and building societies are also prepared to lend more, and not always responsibly. The more that big debts become acceptable, the greater the risk to borrowers if interest rates continue to rise, if house prices fall, and if unemployment goes up further."
Sue Edwards, senior social policy officer, for Citizens Advice, said: "We are already dealing with well over a million new debt problems a year, and are beginning to see more people with mortgage arrears facing the threat of repossession.

Merv has just said there is no problem in relation to secured debt against houses. Ivory tower naivete'?

But house prices will never go down and interest rates will not go up any more - I should know all my mates have told me and are utterly convinced by the VI sputum that is around.

Scotland especially is immune from any potential down turn as of course "prices didn't go down here last time"

They don't seem to worry to much about the potential 5/6/7 x their salary that they might need to buy something they take it as the concept of prices dropping has passed them by.

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The more that big debts become acceptable, the greater the risk to borrowers if interest rates continue to rise, if house prices fall, and if unemployment goes up further."

Sue Edwards, senior social policy officer, for Citizens Advice, said: "We are already dealing with well over a million new debt problems a year, and are beginning to see more people with mortgage arrears facing the threat of repossession

Anyone borrowing on large salary multiples is going to lose their home in the next 2-3 years.

You buy now with a 90-100% LTV mortgage, your home drops in value upto 10% (a very small correction) and you are in NE

When your 4.5% fixed rate mortgage expires you can't remortgage with another bank. You will move swiftly onto the banks SVR rate (6.75%+) and then swiftly onto receiving your repossesion order as you won't be able to pay the mortgage and feed yourself at the sametime.

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"Sue Edwards, senior social policy officer, for Citizens Advice, said: "We are already dealing with well over a million new debt problems a year, and are beginning to see more people with mortgage arrears facing the threat of repossession."

'A Million New Debt Problems' for the CAB being the operative phrase. so if we are 66% through the year, that could be a 1.5 million debt problems rise in a year :o

The CAB always seemed overstretched when I needed them on a couple of occasions, I hate to think what its like now. I imagine it needs some type of online automated Q & A to help the back log.

Edited by Saving For a Space Ship

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"The Council of Mortgage Lenders (CML) says the average first time buyer now receives a mortgage worth 3.21 times their salary, up from 2.4 times income five years ago"...can this really be true? I'd imagine most FTB's are borrowing more...

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Anyone borrowing on large salary multiples is going to lose their home in the next 2-3 years.

You buy now with a 90-100% LTV mortgage, your home drops in value upto 10% (a very small correction) and you are in NE

When your 4.5% fixed rate mortgage expires you can't remortgage with another bank. You will move swiftly onto the banks SVR rate (6.75%+) and then swiftly onto receiving your repossesion order as you won't be able to pay the mortgage and feed yourself at the sametime.

Anyone who borrowed on a large salary multiple will be at risk; to say that anyone who took on a large mortgage is going to loose their home is clearly ridiculous.

Furthermore, a 10 per cent nominal fall in value isn't a "very small correction"; it would actually be without precedent in the absence of serious economic shocks.

I do agree, however, that a seven times multiple is, in almost all circumstances, insane; I have a few friends who have taken four and five times mortgages, but nothing this big.

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Merv has just said there is no problem in relation to secured debt against houses. Ivory tower naivete'?

More like ******wit who really hasn't got a clue as to what is really going on.

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I do agree, however, that a seven times multiple is, in almost all circumstances, insane; I have a few friends who have taken four and five times mortgages, but nothing this big.

I know someone who has purchased an apartment for 12x his salary. I don't know the exact details, because I think it would be rude to ask, but you can bet Mom and Dad paid a hefty deposit, are guarantors and are subbing him every month. This person's take home pay doesn't even cover the interest. But he's happy as he now 'owns a house' and is 'on the ladder'.

There is someone else I know who has 6 BTLs and is currently applying for more. 'Self certification innit? You can borrow as much as you want' as he told me last week.

Mr Mangle

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Anyone borrowing on large salary multiples is going to lose their home in the next 2-3 years.

You buy now with a 90-100% LTV mortgage, your home drops in value upto 10% (a very small correction) and you are in NE

When your 4.5% fixed rate mortgage expires you can't remortgage with another bank. You will move swiftly onto the banks SVR rate (6.75%+) and then swiftly onto receiving your repossesion order as you won't be able to pay the mortgage and feed yourself at the sametime.

OMG I didn't think about this.. so even if you are in NE of say £3k does that mean you can't remortgage and are forced to pay 2% odd more than you are used to?

that will seriously hurt people!!

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OMG I didn't think about this.. so even if you are in NE of say £3k does that mean you can't remortgage and are forced to pay 2% odd more than you are used to?

that will seriously hurt people!!

Understatement extraordinaire - it will completely knock them out.

I'm surprised no one has yet mentioned possibly the most devastatingly potent poison in the present hideous brew - lie-to-buy mortgages (alias self-cert). Hence the incredible 3.2-ish multiples cited in these insufficiently investigative articles. When you factor this in, it's easy to see just how vulnerable today's fools have left themselves.

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You buy now with a 90-100% LTV mortgage, your home drops in value upto 10% (a very small correction) and you are in NE

When your 4.5% fixed rate mortgage expires you can't remortgage with another bank. You will move swiftly onto the banks SVR rate (6.75%+) and then swiftly onto receiving your repossesion order as you won't be able to pay the mortgage and feed yourself at the sametime.

Not a problem:

1. Overpay your existing mortgage by 10% using a credit card cheque.

2. Transfer your now positive equity mortgage to another bank's introductory rate.

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Not a problem:

1. Overpay your existing mortgage by 10% using a credit card cheque.

2. Transfer your now positive equity mortgage to another bank's introductory rate.

Given the average house price is now 200k, exactly how many people have a spare 20k on their CCs?

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Given the average house price is now 200k, exactly how many people have a spare 20k on their CCs?

Well, in the original example we were two years in to a 90-100% repayment mortgage so with a 10% price drop we wouldn't need to overpay anything like that to get back into positive equity.

However, to answer your question, my guess is that most people could scrape together 20 grand on their combined credit cards.

But, this is all irrelevant anyway because house prices are going to drop by 50%.

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"The Council of Mortgage Lenders (CML) says the average first time buyer now receives a mortgage worth 3.21 times their salary, up from 2.4 times income five years ago"...can this really be true? I'd imagine most FTB's are borrowing more...

Not unless the average FTB earns £62,500

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Anyone borrowing on large salary multiples is going to lose their home in the next 2-3 years.

You buy now with a 90-100% LTV mortgage, your home drops in value upto 10% (a very small correction) and you are in NE

When your 4.5% fixed rate mortgage expires you can't remortgage with another bank. You will move swiftly onto the banks SVR rate (6.75%+) and then swiftly onto receiving your repossesion order as you won't be able to pay the mortgage and feed yourself at the sametime.

Its the people on IO mortgages, five years in that leaves them with 20 years to pay of a capital repayment that they couldn't manage in 25 years.

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Not unless the average FTB earns £62,500

Averages are very misleading. It only needs 1 cash FTB and 1 FTB on 6.42 x multiple and hey presto, the average is only 3.21.

Or to put it another way - put Richard Branson, Alan Sugar, The Queen, and Paul McCartney, on a Trisha TV programme watched by a 100 person studio audience. Add up the combined wealth of the guests and the audience and divide by 104. What do you get? An average 104 millionaires involved in daytime TV (calculation and reasoning according to the VI manual of calculation and spin).

Averages count for nothing. It's what happens on the margins that moves markets.

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Not a problem:

1. Overpay your existing mortgage by 10% using a credit card cheque.

2. Transfer your now positive equity mortgage to another bank's introductory rate.

That aint going to work. By then easyily obtainable credit cards with big credit limits will be long gone.

I routinely take out / use / pay off / cancel cards to use as cash while the real cash sits in a high interest account. Credit limits awarded on account opening:

January 2005 - £10,000

February 2006 - £7,000

June 2006 - £3,000

Not authoritative of course but looks to me like the credit crunch cometh.

Edited by George Mainwaring

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  • 331 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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