All New Regulation Must Start With Golden Rule Set In Concrete:

[eric pebble]

Regulation must start with golden rule set in concrete:

NO MORTGAGES OF OVER 3.5 X SALARY ALLOWED .

Very simple -- but utterly fundamental. The rot started when this golden rule was ignored.

Discuss:

Edited March 26, 2008 by eric pebble

[Ignorant Steve]

Whose salary?

Joint or single? Suppose the lady earns far more than the man?

Why have the same rule irrespective of interest rates or salary?

What about annual bonuses?

Seems to me all you are proposing is a penalty on anyone not born into wealthy parents.

[OLDFTB]

Is that really such a good idea? You'll crash the housing market prices if you impose that rule!

Edited March 26, 2008 by OLDFTB

[Guest DissipatedYouthIsValuable]

Regulation must start with golden rule set in concrete:

NO MORTGAGES OF OVER 3.5 X SALARY ALLOWED .

Very simple -- but utterly fundamental. The rot started when this golden rule was ignored.

Discuss:

This should be based on net salary and proven with tax receipts.

Also, you want to earn £1M a year, pay the ******ing income tax or ****** off.

[Guest Skint Academic]

I've been wondering about this. At the moment, two salaries are required not only to get on the housing ladder, but just to keep your head above water. What effect does this have on society? People struggle to start families and there isn't a parent (whether male or female) staying at home during the most formative years of a child's life. What effect does this have on the child? It's yet another move away from the community structure that we used to live in. And what effect does this have on all our lives? None of it good.

So 3 1/2 times joint or single salary?

Edited March 26, 2008 by Skint Academic

[eric pebble]

I've been wondering about this. At the moment, two salaries are required not only to get on the housing ladder, but just to keep your head above water. What effect does this have on society? People struggle to start families and there isn't a parent (whether male or female) staying at home during the most formative years of a child's life. What effect does this have on the child? It's yet another move away from the community structure that we used to live in. And what effect does this have on all our lives? None of it good.

So 3 1/2 times joint or single salary?

Say - maximum of 4.5 x JOINT salary -- 3.5 x SINGLE salary...

But you make the PERFECT and VITAL POINT -- You are EXACTLY RIGHT: -

"...two salaries are required not only to get on the housing ladder, but just to keep your head above water. What effect does this have on society? People struggle to start families and there isn't a parent (whether male or female) staying at home during the most formative years of a child's life. What effect does this have on the child? It's yet another move away from the community structure that we used to live in. And what effect does this have on all our lives? None of it good."

[Injin]

Regulation must start with golden rule set in concrete:

NO MORTGAGES OF OVER 3.5 X SALARY ALLOWED .

Very simple -- but utterly fundamental. The rot started when this golden rule was ignored.

Discuss:

Where is the interest going to come from if people can't borrow a higher multiple next time?

Oh, and you mean lending, right? Not pretending to lend like we have now.

A 1% interest rate will lead to everyone paying many many times the value of goods just prior to a full financial meltdown. It's inevitable with an interest based system, it;s merely a question of how long it takes.

[nohpc]

The x 3.5 multiple is not a golden rule. Multiples should vary depending on individual circumstances.

A better idea is to do away with multiples altogether and actually lend an amount which amounts to a certain percentage of a persons pay - outstanding debts etc ie base it on affordability. There is no need for a rigid 3.5 multiple rule.

[Moo]

Say - maximum of 4.5 x JOINT salary -- 3.5 x SINGLE salary...

I think you mean 2.5x joint. 4.5x joint is "let's go back to 2006".

[kingsgate]

It is impractical and unfair to impose a legal restriction on one person or company choosing to lend money to another. It goes against people's freedom.

As someone else pointed out, there are so many different circumstances that would fall foul of such a rule.

It works for Joe Ordinary, who just wants a standard house, has a standard full-time job, a standard wife and family, etc etc.

It doesn't work for the extraordinary people.

That's why it won't work, and it won't happen.

Sure, many lenders will tighten up their criteria for quite a while - you wouldn't need a new law for that.

Anyway, my motto has always been "rules are for the obedience of fools and the interpretation of wise men". It has worked for me so far.

[eric pebble]

The x 3.5 multiple is not a golden rule. Multiples should vary depending on individual circumstances.

A better idea is to do away with multiples altogether and actually lend an amount which amounts to a certain percentage of a persons pay - outstanding debts etc ie base it on affordability. There is no need for a rigid 3.5 multiple rule.

What should that "certain percentage of a persons pay" be then?

I have read many good & sensible articles recently which said that the "rule of thumb maximum 3 x salary" [yes - only 3x] was tried and tested over many many years - and proved to be extremely practical and prudent.....

Edited March 26, 2008 by eric pebble

[nohpc]

I would say the maximum should be where the interest only component of the mortgage is no more than 50% of an individuals pay after tax.

[eric pebble]

It is impractical and unfair to impose a legal restriction on one person or company choosing to lend money to another. It goes against people's freedom.

As someone else pointed out, there are so many different circumstances that would fall foul of such a rule.

It works for Joe Ordinary, who just wants a standard house, has a standard full-time job, a standard wife and family, etc etc.

It doesn't work for the extraordinary people.

That's why it won't work, and it won't happen.

Sure, many lenders will tighten up their criteria for quite a while - you wouldn't need a new law for that.

Anyway, my motto has always been "rules are for the obedience of fools and the interpretation of wise men". It has worked for me so far.

AH!!!!!!!!! I just KNEW I would ferret you out of he woodwork Kingsgate!! It's you who has stated that there is no problem with lenders lending exhorbitantly etc.

Funny isn't it -- you have many times boasted about your BTL Empire --- I suppose the imposition of some sensible rules in the Financial Sphere would not really help the "value"/"price" of your "assets".....

Edited March 26, 2008 by eric pebble

[nohpc]

AH!!!!!!!!! I just KNEW I would ferret you out of he woodwork Kingsgate!! It's you who has stated that ther is no problem with lenders lending exhorbitantly etc.

Funny isn't it -- you have many times boasted about your BTL Empire --- I suppose the imposition of some sensible rules in the Financial Sphere would not really help the "value"/"price" of your "assets".....

But there is no problem with lending exhorbitantly to intelligent people with good solid well paying jobs. I borrowed close to 6 x salary and I now owe 4 x salary and that is over a space of 3 years. Actually I owe more like 3 x my current salary but using my old salary it's 4 x. So if your salary is going up and you are a prime saver then you should be allowed to borrow more no doubt about it.

[eric pebble]

I would say the maximum should be where the interest only component of the mortgage is no more than 50% of an individuals pay after tax.

This has - and will always - lead to disaster imho. It is ludicrous that it should go over 1/3rd of peoples' incomes. People have to live!! Look at Germany --- the 3 x salary principle whether for rents or mortgages holds true there -- and they GET ON WITH BUILDING/MAKING THINGS -- THEY LIVE!!!! .....

Edited March 26, 2008 by eric pebble

[nohpc]

This has - and will always - lead to disaster imho. It is ludicrous that it should go over 1/3rd of people's income. People have to live!! Look at Germany --- the 3 x salary principle whether for rents or mortgages holds true there -- and they GET ON WITH BUILDING/MAKING THINGS -- THEY LIVE!!!! .....

Lets say you earn 2000 pounds a month after tax and half goes into your mortgage you still have another 1000 to live on which is more than many people earn in the first place.

[eric pebble]

I think you mean 2.5x joint. 4.5x joint is "let's go back to 2006".

Yes --- I agree --- 4.5 x joint is too much -- it should really NEVER go over 3 x actually......

[eric pebble]

Lets say you earn 2000 pounds a month after tax and half goes into your mortgage you still have another 1000 to live on which is more than many people earn in the first place.

Yes -- but this is the exception rather than the rule.... People earning huge amounts can buy for cash anyway! Or would be able to....

Edited March 26, 2008 by eric pebble

[eric pebble]

But there is no problem with lending exhorbitantly to intelligent people with good solid well paying jobs. I borrowed close to 6 x salary and I now owe 4 x salary and that is over a space of 3 years. Actually I owe more like 3 x my current salary but using my old salary it's 4 x. So if your salary is going up and you are a prime saver then you should be allowed to borrow more no doubt about it.

OK -- Perhaps allow for some flexibility with the top 5% of earners --- but the madness of today where EVERYONE HAS TO "borrow" 6, 7, 8, 9 [etc] x salary is TERRIBLE FOR THIS COUNTRY!!

Edited March 26, 2008 by eric pebble

[Cinnamon]

Whose salary?

Joint or single? Suppose the lady earns far more than the man?

Largest salary -- and only one because this situation arises more often and quickly than most people think. If they earn more -- great, they can get a mortgage that allows overpaying.

Why have the same rule irrespective of interest rates or salary?

Because life span is finite and people need to be able to afford other things besides a house.

What about annual bonuses?

What about next week's lottery win? (or overpaying your mortgage?)

Seems to me all you are proposing is a penalty on anyone not born into wealthy parents.

No, not being able to afford things is a penalty in general on not being rich enough(...)

No matter which way you turn it -- if people buy things they cannot afford, to the detriment of other things that they also need they'll end up even poorer than they already are.

[alexw]

It is impractical and unfair to impose a legal restriction on one person or company choosing to lend money to another. It goes against people's freedom.

As someone else pointed out, there are so many different circumstances that would fall foul of such a rule.

It works for Joe Ordinary, who just wants a standard house, has a standard full-time job, a standard wife and family, etc etc.

It doesn't work for the extraordinary people.

That's why it won't work, and it won't happen.

Sure, many lenders will tighten up their criteria for quite a while - you wouldn't need a new law for that.

Anyway, my motto has always been "rules are for the obedience of fools and the interpretation of wise men". It has worked for me so far.

Simple - 90% of outstanding loans must be 3.5x salary. Remainder can be higher on the provision they are owner occupied. That takes care of the special cases. Put in place rental laws as in germany to take out the btl capital speculation and have it based on long term rental returns.

[silver surfer]

I'm all for tighter lending regulation, but there needs to be more flexibility than this.

Compare two potential borrowers. The first is a 50 year old doctor earning £100k+ married to another doctor, the second a 25 year old multiple divorced nightclub DJ earning £20k.

They don't represent equal risk despite a x3.5 income cap. I'd be comfortable lending x5 to the doctor, but I'd be nervous at the DJ's ability to re-pay the loan at x2.

[rich6400]

Sounds like France and Belgium.... You have to prove your income and by law the banks cannot lend you more than you can reasonably afford - remember the good 'ol days in the UK?

[R K]

I think you mean 2.5x joint. 4.5x joint is "let's go back to 2006".

3x single or 2.5x joint with 10% deposits worked perfectly well before 2000.

If interest rates fall substantially with those multiples people have the choice of either paying off their mortgage much earlier or having a life. I've known several couples with no kids who routinely paid their mortgage off after 12/15 years under that scenario and were then able to save far more towards their pensions and so forth. House prices stay generally more "affordable" and fewer people are forced to live to work as is now the case under our Calvinist/fascist work-til-you-drop govt.

It doesn't need to be a hard and fast "rule" as it wasn't before. Self-employed, those on temp. contracts and so on can still find mortgages from banks/specialist lenders as they have always done. What it does require is better regulatory supervision and most importantly of all LEGAL RESTRICTIONS ON THE ACTIVITIES OF US INVESTMENT BANKS IN THE UK RETAIL MARKETS. THEY ARE, ALWAYS HAVE BEEN AND WILL CONTINUE TO BE CRIMINALS.

[huw]

There's no need for nanny-state prescriptions about what individuals may borrow; all we need to do is to prohibit off-balance-sheet lending. If lending is transparent then all stakeholders -- including depositors -- have the information and incentive they need to keep things sensible.

(edit: having said that I disapprove of mortgages full stop, because they inevitably inflate the price of houses while enabling the feckless to outbid those relying on real wealth that they have earned and saved).

Edited March 26, 2008 by huw