The New Dilema For Buyers, Ftb And Movers

[laurejon]

As discussed sometime ago the writing on the wall is becoming clearer each and every day.

For several years many have pondered the question whether or not to take a leap of faith and enter the market, or to wait and see.

Prices over the past years have for sure increased beyond what is reasonable inflation given the static nature of wages and the ever shrinking real economy.

The Dilema many have today is not "Can we afford to sell up and move to another property" or "Can we afford to leap onto the housing market at these prices"

As predicted, the dilema is that the process is now completely out of the hands of the prospective purchaser, the buying decision in the greatest part has been removed from the buyer, and is now firmly in the hands of the banks.

The new hurdle is "Will the bank lend me the money to finance the purchase" and in many cases the answer is now NO.

The credit crunch has brought a completely new angle to the market place, and many people from all facets of the market will shortly be kicking themselves.

STR'ers are being refused mortgages, they have large deposits however their credit history is marred by the fact that they have not owned for serveral years, their employment prospects are not seen by the banks as quite as good as the applicants think they are.

FTB'ers, always a difficult time when taking them onboard, and SubPrime in most cases. However banks have in the past given them a break, in order to maintain the chain and perpetuate the process of dependent sales. Today Banks have clammed up on First Time Buyers, banks are fighting for survival, and additional baggage that is high risk is no longer an option under any circumstances. FTB'ers today will have to stump up huge deposits, have cash for legals and stamp duty, and jobs that they have been in for several years, jobs that are recession proof, and jobs that should they be laid off would have little difficulty in finding another.

House Movers, Many people wishing to move home for whatever reason, Work Commitments, Family, or to larger or smaller house are going to also find it difficult to gain access to the financial market place. A single missed payment on anything, not just the mortgage over the years will get them a NO from any applications they make for a mortgage. In most cases House Movers are looking to increase their borrowing, this again presents problems as the banks can see directly the way in which the applicant has managed their finances over the past years.

In short, its not about who can afford to buy, its about which bank will lend and at what rate. Many Many people have missed the point, and as a result will have missed the market.

I read a lot of people posting with regard to prices, adopting the "I am waiting for prices to drop" unfortunately they might be waiting a very long time as the real key to buying is getting the finance, not getting the price.

[OnlyMe]

Movers - stinging stamp duty and falling prices - increasingly they will have to pay the tax money out of their pocket rather than lumping onto to already eye-watering mortgages.

They could stomach it during the boom. I see stamp duty as a market-crippler when the free money is not available. Huge dollops of stamp duty are unpayable by a large proportion of movers and this tax regime/pricing combination is utterly untested outside of bubble market conditions.

[newbie]

Movers - stinging stamp duty and falling prices - increasingly they will have to pay the tax money out of their pocket rather than lumping onto to already eye-watering mortgages.

They could stomach it during the boom. I see stamp duty as a market-crippler when the free money is not available. Huge dollops of stamp duty are unpayable by a large proportion of movers and this tax regime/pricing combination is utterly untested outside of bubble market conditions.

The economic burden will shift to sellers (if they want/need to sell), ie. price cuts. Until now it has been on buyers (paid for via a higher mortgage)

Edited March 19, 2008 by newbie

[jimi]

Laurejon, you make a good point with which I agree. However, my view is that once house prices have reached their low point, and begin their steady rise upwards again (as they inevitably will), at this point the banks will have regained confidence and will start leveraging again, i.e. they will relax their lending criteria, and the likes of STR, FTB (and BTL!!!!) etc will be able to access mortgages more easily again (but hopefully never as easily as in recent times!!).

[Lepista]

Laurejon,

I don't think it is a dilemma. If you can't get a mortgage in the first place, then what's the dilemma? You don't have a choice. The banks are actually doing these people a favour. Prices will drop, and they'll be thanking their lucky stars that they didn't buy at this peak.

STR's - the whole purpose of STR'ing is to get a nice pot of cash, and then buy back in when prices have dropped. (a) If they are buying now, then they have missed the whole point of STR'ing; and ( Unless they are 'moving up', then they aren't likely to need any sizeable mortgage at all (particularly if they've been saving their additional difference between mortgage payments and rent). I doubt very much that any lenders criteria include how many years someone has been 'out of the market'. Why on earth would that make a difference?

[stillill]

Only FTBs without deposits will struggle. Which is how it should be. Get saving, like everyone used to do (and I'm assuming every FTB on HPC has been doing for years). 100k+ deposits shouldn't pose a problem.

Staying in your 'recession-proof' job - that's another matter altogether.

[Guest DissipatedYouthIsValuable]

Only FTBs without deposits will struggle. Which is how it should be. Get saving, like everyone used to do (and I'm assuming every FTB on HPC has been doing for years). 100k+ deposits shouldn't pose a problem.

Staying in your 'recession-proof' job - that's another matter altogether.

Having a £100k deposit shouldn't pose a problem for FTBs?

Interesting, but ********.

Your financial illiteracy suggests you might have difficulty with the concept of a 'job' too.

Edited March 19, 2008 by DissipatedYouthIsValuable

[laurejon]

Laurejon,

I don't think it is a dilemma. If you can't get a mortgage in the first place, then what's the dilemma? You don't have a choice. The banks are actually doing these people a favour. Prices will drop, and they'll be thanking their lucky stars that they didn't buy at this peak.

STR's - the whole purpose of STR'ing is to get a nice pot of cash, and then buy back in when prices have dropped. (a) If they are buying now, then they have missed the whole point of STR'ing; and ( Unless they are 'moving up', then they aren't likely to need any sizeable mortgage at all (particularly if they've been saving their additional difference between mortgage payments and rent). I doubt very much that any lenders criteria include how many years someone has been 'out of the market'. Why on earth would that make a difference?

Banks no longer make the decision, its done by a computer and if you dont fulfill the profile you will get knocked back.

Many Banks see someone who has sold up and not purchased another as suspect, its quite possible they sold as they had financial problems, thats the reason.

In addition, they have lost their credit score, again if they default on the direct debit of a 20 quid a month broadband connection, or miss a card payment as they were on holiday, they will be refused a mortgage.

Prices as you say will drop, however you are missing the salient point. Many people are living in hope that when prices drop they will buy. They will be waiting a long time, as the banks will start by lending to only the best customers in the first place and they are likely to be people with property, with a track record of unbroken payment histories, and no STR casting suspicion on their previous financial history.

STR will for many be a black mark for future borrowing.

[lulu]

Banks no longer make the decision, its done by a computer and if you dont fulfill the profile you will get knocked back.

Many Banks see someone who has sold up and not purchased another as suspect, its quite possible they sold as they had financial problems, thats the reason.

In addition, they have lost their credit score, again if they default on the direct debit of a 20 quid a month broadband connection, or miss a card payment as they were on holiday, they will be refused a mortgage.

Prices as you say will drop, however you are missing the salient point. Many people are living in hope that when prices drop they will buy. They will be waiting a long time, as the banks will start by lending to only the best customers in the first place and they are likely to be people with property, with a track record of unbroken payment histories, and no STR casting suspicion on their previous financial history.

STR will for many be a black mark for future borrowing.

That does not make sense and you know it. I am not a STR'er but if I turned up to my bank tomorrow with the proceeds of a previous STR deposit (unlikely as any STR will be holding off for wee while yet), say for example a deposit of £100,000 and wanting to buy a £200,000 property then i would imagine the bank would have my arm off to get the business. The size of the deposit will be enough to lower the risk substantially for the bank and assuming you didnt miss the broadband payment of £20 then there will be nothing too horrible wrong with the creidt record.

Now I can see your point if it was a FTB who rolled into the bank with naff all of a deposit then the banks would be more cautious.

[Lepista]

Banks no longer make the decision, its done by a computer and if you dont fulfill the profile you will get knocked back.

Many Banks see someone who has sold up and not purchased another as suspect, its quite possible they sold as they had financial problems, thats the reason.

In addition, they have lost their credit score, again if they default on the direct debit of a 20 quid a month broadband connection, or miss a card payment as they were on holiday, they will be refused a mortgage.

Prices as you say will drop, however you are missing the salient point. Many people are living in hope that when prices drop they will buy. They will be waiting a long time, as the banks will start by lending to only the best customers in the first place and they are likely to be people with property, with a track record of unbroken payment histories, and no STR casting suspicion on their previous financial history.

STR will for many be a black mark for future borrowing.

Yes, I agre, if you have bad credit then it will be harder, if not impossible. However, I doubt very much that the STR brigade have bad credit. Plus, they will have a relatively huge slab of dosh relative to the average punter, which will go a long way to alleviating any issues the bank has with them.

STR does not 'cast suspicion' on a person. They will look at the cold, hard (financial) facts. If the financials add up, then the bank won't care where the money came from.

Plus, I really feel that house prices will plummet - I realise you disagree with me here. I ask this question, though - who is available to buy houses, if the credit isn't there to finance them? It is not sustainable. House prices will fall, and fall hard and fast.

[JumboMills]

Only FTBs without deposits will struggle... 100k+ deposits shouldn't pose a problem.

Possibly the most middle class thing I've ever heard.

[laurejon]

That does not make sense and you know it. I am not a STR'er but if I turned up to my bank tomorrow with the proceeds of a previous STR deposit (unlikely as any STR will be holding off for wee while yet), say for example a deposit of £100,000 and wanting to buy a £200,000 property then i would imagine the bank would have my arm off to get the business. The size of the deposit will be enough to lower the risk substantially for the bank and assuming you didnt miss the broadband payment of £20 then there will be nothing too horrible wrong with the creidt record.

Now I can see your point if it was a FTB who rolled into the bank with naff all of a deposit then the banks would be more cautious.

Forget the security of 100k, they are cash starved and have much better places to park 100k with greater return.

Example, you have 100k of deposit, have been travelling for a year, and have just started a new job.

Computer will say NO

Example, you have 100k deposit, you are arguing with your landlord about return of deposit, your landlord registers you as a defaulter. Computer says NO

Example, you have 100k deposit, and you lived in a shared house, one of your housemates is bankrupt.

Computer says NO

[stillill]

Having a £100k deposit shouldn't pose a problem for FTBs?

Interesting, but ********.

Your financial illiteracy suggests you might have difficulty with the concept of a 'job' too.

Well what the f* have they been doing for the last 5-10 years if not saving up?

[laurejon]

Yes, I agre, if you have bad credit then it will be harder, if not impossible. However, I doubt very much that the STR brigade have bad credit. Plus, they will have a relatively huge slab of dosh relative to the average punter, which will go a long way to alleviating any issues the bank has with them.

STR does not 'cast suspicion' on a person. They will look at the cold, hard (financial) facts. If the financials add up, then the bank won't care where the money came from.

Plus, I really feel that house prices will plummet - I realise you disagree with me here. I ask this question, though - who is available to buy houses, if the credit isn't there to finance them? It is not sustainable. House prices will fall, and fall hard and fast.

I dont disagree, as house prices plummet interest rates will redress the balance.

As rates dropped prices went up, as prices go down, rates will go up.

Its a balancing act that sees the average punter fork out around 1k per month no matter what the price, or what the interest rate is.

[Lepista]

I dont disagree, as house prices plummet interest rates will redress the balance.

As rates dropped prices went up, as prices go down, rates will go up.

Its a balancing act that sees the average punter fork out around 1k per month no matter what the price, or what the interest rate is.

...so then, these people with nice big STR's won't even need to go to the bank - they'll be cash buyers.

Even if they are moving (significantly) up the ladder, then the mortgage will still be quite small for them.

What the banks will be looking at are:

(1) Credit history

(2) LTV

(3) Loan amount.

Critically, for the STR's, their LTV will be much much better than most other peoples; and also their loan amount is likely to be much less than most other peoples. They will therefore be seen by the banks as a good bet.

[Guest DissipatedYouthIsValuable]

Well what the f* have they been doing for the last 5-10 years if not saving up?

Attempting to get rid of student debt and pay the taxes.

[Fudge]

Attempting to get rid of student debt and pay the taxes.

I actually think lenders will consider STR as a good bet for lending money to as they have demonstrated

they had the insight to see the reality of the housing market and the foresight to get out before the bubble burst.

STR went against the herd a made an informed decision.

There is a saying when buying a car, look at the previous owner, what sort of a person is he, if a dickhead

then the car is probably a lemon.

Same goes when lending out money, look at the person, if that person is responsible and can make hard financial

decisions based on facts and is able to act on this regardless of the herd then probably a good bet that you will get your money back.

[Scarecrow]

Laurejon, you make a good point with which I agree. However, my view is that once house prices have reached their low point, and begin their steady rise upwards again (as they inevitably will), at this point the banks will have regained confidence and will start leveraging again, i.e. they will relax their lending criteria, and the likes of STR, FTB (and BTL!!!!) etc will be able to access mortgages more easily again (but hopefully never as easily as in recent times!!).

I think what we're beginning to see is that the economy may take a very long time to recover - what happens if banks don't regain confidence for a decade?

I agree with what laurejon says - even people with a massive deposit may find it very difficult to get any finance at all as banks impose strict lending criteria the likes of which many of us haven't witnessed.

[Guest An Bearin Bui]

Banks no longer make the decision, its done by a computer and if you dont fulfill the profile you will get knocked back.

Many Banks see someone who has sold up and not purchased another as suspect, its quite possible they sold as they had financial problems, thats the reason.

In addition, they have lost their credit score, again if they default on the direct debit of a 20 quid a month broadband connection, or miss a card payment as they were on holiday, they will be refused a mortgage.

Prices as you say will drop, however you are missing the salient point. Many people are living in hope that when prices drop they will buy. They will be waiting a long time, as the banks will start by lending to only the best customers in the first place and they are likely to be people with property, with a track record of unbroken payment histories, and no STR casting suspicion on their previous financial history.

STR will for many be a black mark for future borrowing.

You're basically saying that lending criteria will return to the standards of the 1970s where the only people eligible for mortgages were those with professional or government jobs (doctor, lawyer, civil servant etc), significant deposits and good credit histories. Anyone self-employed or poorly paid or working in an area the bank deemed to be insecure couldn't get a mortgage. That situation would actually suit me fine as that would exclude such a huge extent of the population that prices would have to fall back to 1970s multiples i.e. 2-3 x times one earner's income so that would mean that the average house price would fall back to about 75k. If that were the case, then I could buy for cash and wouldn't need a mortgage so I hope your scenario comes true! Sure it might take a few years to get there but that just gives me more time to build up my funds.

[meow]

Attempting to get rid of student debt and pay the taxes.

Being in your 20's is great, I love having a government that has screwed me over and left me not feasibly being able to afford anything of any interest / worth.

Right, I'm off to whip myself and buy a shared equity flat in manchester, weeeeeeeeeeeeeeee!

[Guest DissipatedYouthIsValuable]

Being in your 20's is great, I love having a government that has screwed me over and left me not feasibly being able to afford anything of any interest / worth.

Right, I'm off to whip myself and buy a shared equity flat in manchester, weeeeeeeeeeeeeeee!

Just make sure you concentrate your business efforts on getting hold of the silver pound.

Stealing it back through commerce seems a rational response.

[eric pebble]

As discussed sometime ago the writing on the wall is becoming clearer each and every day.

For several years many have pondered the question whether or not to take a leap of faith and enter the market, or to wait and see.

[..../]

As predicted, the dilema is that the process is now completely out of the hands of the prospective purchaser, the buying decision in the greatest part has been removed from the buyer, and is now firmly in the hands of the banks.

Good post LJ -- But I think that the "buying decision" has been in the hands of the banks for YEARS.... And they very simply and rapidly "answered" that question in the affirmative and went to the next step of "hand the cash over" without as much as a BLINK of the eyes.......

And how did they pull this extraordinary trick??

Why -- They just gave a significant proportion of their "customers" the easy, easy ticket out.....

LIAR LOANS --- and all the variations thereof.... i.e. "Self-Cert", 8, 9, 10, 11, 12 x salary, INTEREST ONLY etc etc etc.

ALL THESE ARE A VARIATION ON THE SAME THEME....

LIAR LOANS

Edited March 19, 2008 by eric pebble

[babesagainstmachines]

Never read so much drivel in all my life. (Actually I have, it's called Hansard, different story...)

Have you ever been a FTB? You are aware that FTB have never been home owners. STR will be treated exactly as FTB. Except most will have a decent deposit and be looking for much lower LTV.

People can't half make some crap up...

[gilf]

I do to some extent agree with the principle point, however as an STR it doesn't concern me.

My view has always been that if I can't get a mortgage then the whole market will be in very very deep trouble and the ideal scenario for me of 30-40% drops will be a best case scenario. As somebody else said this great armegeddon scenario would only bring about a situation where I could buy in cash.

[caseyloca]

Well what the f* have they been doing for the last 5-10 years if not saving up?

what a stupid comment....

if you earn 25k a year (national average) and saved 10 of it a year, it would take you 10 years to get that 100k

I doubt many twenty somethings earn 25 k a year let alone save it