Mortgage Rationing Gets Tougher

[HAMISH_MCTAVISH]

Ok so maybe Rightmove doesn't reflect the Aberdeen sales market but nevertheless there are cheaper rentals available. People who cannot manage their personal finances will get a raw deal in any kind of market.

He is better off simply because had he bought he would now own a depreciating asset and with only £4k off savings to put towards the cost of buying he would now be in negative equity to the tune of at least £10k - a sum which would apparently take him 10 years to save if that helps put it in perspective for you. Your assurances that prices will quickly rebound because of the local economy would be worth nothing to him were he in that position.

Actually, the negative equity would be temporary, the depreciating asset is very temporary, and only relevant in the very unlikely case that he needed to move. He's not the moving type. He's in a stable state job, had it for 5 years, (not council), very secure.

You can't prove he's better off, because he isn't. There are many more just like him.

Look, you asked for the figures, I gave them to you, and sourced them, and now when you see that your case doesn't hold water, you try to change the facts by banging on about "Oooh, well, he should just save more". Thats not the case study here.

The numbers are what they are, and for the purpose of this excercise do not change. Your wishing for his ability to change his financial circumstances to fit your perspective does not make it possible or practical.

Now, again, show me how he's better off over the long term, given the figures I have identified, or admit that he isn't.

[Bloo Loo]

Likely 2 years recesssion from the lips of your own glorious world saving leader....Says NO

[thecrashingisles]

Look, you asked for the figures, I gave them to you, and sourced them, and now when you see that your case doesn't hold water, you try to change the facts by banging on about "Oooh, well, he should just save more". Thats not the case study here.

The numbers are what they are, and for the purpose of this excercise do not change. Your wishing for his ability to change his financial circumstances to fit your perspective does not make it possible or practical.

Now, again, show me how he's better off over the long term, given the figures I have identified, or admit that he isn't.

You didn't give me any figures that showed that he would have been better off buying. If the idea was to let a room out to a friend to pay for some of the mortgage, well you can share the rent on a 2-bed flat anyway.

If you're so convinced of the long term benefits, why don't you lend him the deposit now and he could experience the joys of home ownership today? You might even make a tidy profit by stepping in where Nationwide fears to tread!

[winkie]

If you can't afford to save for a deposit...ask yourself, can you really afford to buy a property with the cost and expense attached to it even at todays interest rates....Rent, save hard, try to improve income potential. Prices will fall but regular savings will always increase.

The only thing to keep your eye on is inflation...so far so good.

[babesagainstmachines]

In our area, prices have so far declined 8%-12%. I expect them to decline a further 10% to 12% or so, which would be double the forecast for next year for where I live. I then fully expect prices to rise fairly quickly in our area, re-reaching peak within 2-3 years (2012/2013) due to our particular local economy and demographics. However as borrowing standards are dictated nationally, and the easeing of rationing will take some years to filter through, I expect my cousin will be unable to buy until prices in our area reach close to the peak.

Without expressing a subjective opinion on whether you believe such a buyer should be allowed to buy, or needs to be saved from buying, please explain to me how this person in those circumstances will be able to take advantage of the decline in prices.

Deposits are high because the market is crashing. When it stops, the LTV will go back to 90%. Maybe even 95%. Not 100% tho, unless you are a recently qualified doctor, lawyer etc.

[sbn]

Deposits are high because the market is crashing. When it stops, the LTV will go back to 90%. Maybe even 95%. Not 100% tho, unless you are a recently qualified doctor, lawyer etc.

100% agree - the small amount of people who can afford the 25% downpayment aint gonna slow the drop 1 iota. - They will just get the pick of the bunch for the price of their 25% - which rthey will lose

[Bloo Loo]

Average wage=25K

Therefore the average available mortgage is £80-90K

add your equity and you have an average house price.

Many will be below this, but I guess the average house is a 3 bed semi with garden. £110K.

flats, where wages will be 13K, the mortgage is £55K so target price £65K.

Yes, we have long way to go. And an overshoot as always.

[allfiredup]

But he IS too old for a flat. I really don’t understand why FTB = flat/small house. The reason flats are associated with FTBs is that historically many FTBs are on small wages relative to what they may earn later in their lives due to their young age. They then later trade up to bigger and better properties as they get older and their earning power increases.

However, if an FTB is in their 30s and not just starting out career-wise then there is no real reason why they should necessarily start off on the first rung of the ladder, surely! As long as they can afford a sensible deposit (5-10%) and their salary can support the mortgage payments, then of course an FTB can look at semi-detached and detached properties. If the point you are making is that your friend is not disciplined enough to save for a deposit even on his good wage so cannot be responsible for a mortgage, then I can go along with this. It's just the implication that ALL FTBs should start out small that annoys me a bit.

Wrong. He is too old to be a FTB. Especially without a LARGE deposit.

FTB's that have a massive deposit have done well and should deserve to jump a rung or two.

If a FTB has only got a 5 - 10% deposit and is on a decent wage they should be looking at flats/ small terreces for their first house regardless of their age.

Thats how it always used to be.

Then after a bit of (non-boom bust) time they should have some equity to upgrade to the 3 bed semi of their dreams regardless of their age.

Why should age matter if the finances in place are the same?

Part of the problem here is people are leaving it too late in life to buy, and then dont consider themselves FTB's.

What your saying is exactly whats going wrong here. Peoples desire to overstretch themselves because they feel they deserve it and not because they can afford it.

[repetitive bleats]

Bemoaning the inability to take out a mortgage right now is verging on moronic.

i disagree. it crosses that particular line IMO.

[ccc]

Yeah but your saying nearly 10 years is no big deal, thats quite a heafty portion of ones life right there.

Very true. However if you plan on buying a house then for most people you are looking at an arrangement of 30+ years.

Put it into that context - waiting 10 years to ENSURE you buy at the very right time is no big deal.

If things go to plan for me I will save about 250k compared to buying in 2007 when everyone was telling me to. I will probably move into it 5 years later than I could have. However I will own it approx 20 years earlier. That is a pretty wise choice IMO.

Of course I may never even buy. Still to make my mind up. And there is also the worry of this country going completely to the dogs.....

No point worrying IMO. Not much we can do.

[mr slump]

100% agree - the small amount of people who can afford the 25% downpayment aint gonna slow the drop 1 iota. - They will just get the pick of the bunch for the price of their 25% - which rthey will lose

yep

does it occur to many on here that this is a deliberate and good action on the part of the banks?

(I don't mean 'good' morrally, I mean for potential home buyers)

they know theres an hpc and for them to give out mortgages in a falling market is risky and pretty dumb

so perhaps they know they have a certain amount of dead / bad debts and theres fvck all they can do about it

the only way to sell mortgage products and start making big money is to drive the market down to the floor

it won't be stable until then, so as far as the crash goes the sooner the better for them

and if they can speed it up by strangling the mortage market all the better

they don't give a fvck about the value of a home or who lives in it

its about assets against debt and profit

so when thy consider the floor is reached easier mortages will appear

its how they make money

Edited January 5, 2009 by mr slump

[notthereyet]

Deposits are high because the market is crashing. When it stops, the LTV will go back to 90%. Maybe even 95%. Not 100% tho, unless you are a recently qualified doctor, lawyer etc.

The lenders must be expecting more falls as they ask for large deposits in a falling market to protect their loan.

[winkie]

The lenders must be expecting more falls as they ask for large deposits in a falling market to protect their loan.

Are you saying that they would rather you lose your money before they lose their own...no.

[notthereyet]

Are you saying that they would rather you lose your money before they lose their own...no.

You know the Score Winkie

[BXLONDONMAN]

The lenders must be expecting more falls as they ask for large deposits in a falling market to protect their loan.

the lenders have only just found out what real wage's are in the street not many in the 100k + bracket..

things can only get tougher,liar loans is what done it guv..

[spivT]

I see what you're saying, but it's simply not true for many people.

Mortgage rationing, as now exists, quite simply locks a lot of deserving people out of the market.

The people with the lowest deposits, the least ability to save, and potentially a few minor blemishes on their credit, are also most likely to be the poorest and/or youngest in society. They will have zero ability to buy a home until mortgage rationing ends, no matter what the price. And as rationing eases, others with higher incomes/deposits will of course be allowed to buy first, thus pushing up pricing, and further pushing away the targets for many FTB's.

There are a lot of young people for whom saving is very difficult, even more so now in a recession. For those people, a £5k deposit on a £100k flat may be achievable, after many years of saving. A £20k deposit on a £70k flat will likely never be achievable.

How do you work out that people with higher deposits will push up pricing if mortgage rationing eases. You've been way off the mark with most of what you've said so far.....i'm curious.

Also, a 20k deposit on a 70k is much preferable for a first time buyer than a 100k flat and with much lower equity on initial purchase.....if a ftb cannot save up between 15-20k then in all honesty they shouldn't be looking to buy, all that will happen is that prices will continue to reduce until we get a bottom and at that point the average property prices will allow a considerable number of first time buyer to buy with 10% deposit. No 5% deposits as you continue to advocate......minimum 10% that's the new game in town. So an 70k flat available to someone with an 7k mortgage....they'll pay a premium in interest rates and arrangement fees, but all the more incentive to negotiate the price down and think long and hard about jumping in. Doesn't sound unreasonable does it ??......5k on a 100k flat is pre-2007 housing market warped economics. We'll kick that kind of nonsense to the curb. How is it any way economically sensible and manageable on any great scale for people on low incomes, say 18k a year to take out a mortgage at well over 5x their income ??

McCatavish.......what you will have to realise is that strignent lending criteria is the best thing that could have happened to the UK housing market.

btw, we've discussed this before. 10% deposits ARE available, if that is unreachable for the majority of FTBs then we'll see further reductions. Simple as that. IT does NOT follow that people with 10% deposits will be beaten to the punch three or four years from now, as prices will be affordable given ample opportunity for all with the necessary funds irrespecitve of what LTV they can come in at.

[porca misèria]

10% deposit is a fair whack, 25% is impossible for almost all FTBs.

If you equate FTB with young person in their first couple of years of work. That's the attitude that got us into this mess. It's not true of an older prospective FTB like myself with the savings to pay 50% on an average house - or 100% at the bottom end.

It seems like we've gone from years when the deposit required was way too small, and as we know, even non-existent, to one where you need a really very large deposit.

The former was mad , the latter is very harsh, but necessary i guess if you are a bank who has lent yourself up sh1t creek.

The latter is not harsh as such, it's normal. What's harsh about it is being exposed to our shark-infested rental market.

[Pie Eater]

I hear what everyone is saying, and agree that lenders requiring higher deposits is a positive thing. However, try not to be so harsh on FTBs who are saving for their first deposit now. As is the point of this site, a 10% deposit is much more difficult to achieve these days than it was for first time buyers, say 8 years ago, given the rate at which HPI has outstripped wage inflation. Hopefully, this will correct itself in time.

Edited January 5, 2009 by Pie Eater

[ccc]

House price falls by 50%.

Person's deposit doubles.

Sure you may have to wait a few years but still all good.

If you manage to double your deposit yourself within these years - then in relation to house prices your deposit has quadrupled. Excellent news.

2007

Flat = 100k

Deposit = 10k

2011

Flat = 50k

Deposit = 20k.

Instead of owning 10% of the flat up front - you own 40%.

I am almost certain the above scenario will take place for many people across this country. The only difficulty I see is continuing to earn enough money to save. Apart from that - it's on the way.

[b0rk]

However, try not to be so harsh on FTBs who are saving for their first deposit now. As is the point of this site, a 10% deposit is much more difficult to achieve these days than it was for first time buyers, say 8 years ago, given the rate at which HPI has outstripped wage inflation. Hopefully, this will correct itself in time.

Part of reason we are seeing a "crash" in house prices is exactly because HPI has outstripped general inflation. You can only inflate a debt bubble so far before the populous becomes unwilling or unable to continue blowing.

[grizzly bear]

There are a lot of young people for whom saving is very difficult, even more so now in a recession. For those people, a £5k deposit on a £100k flat may be achievable, after many years of saving.

I don't agree this is a good state of affairs - a 5% deposit on a £100k property for a FTB who earns £25k is only a good idea if either house prices are rising fast or the FTB suddenly comes into money (inheritance/big payrise) and will be able to pay of a good chunk of the mortgage so they can move up.

If prices fall 5% they are screwed, and if prices are static they are still screwed as they probably can't move up either as they can't borrow any more.

We bought in 1997 as FTB with a 40% deposit - by 2001 we'd paid it off AND could afford a real step up.

Compare to my sister in law, bought in 2004 with a similar sized deposit but was only 15% because of HPI. 4 years later has only paid the normal payments on 25 year mortgage and flat didn't go up in value so they can not afford to move up at all.

[notthereyet]

There are a lot of young people for whom saving is very difficult, even more so now in a recession. For those people, a £5k deposit on a £100k flat may be achievable, after many years of saving.

I don't agree this is a good state of affairs - a 5% deposit on a £100k property for a FTB who earns £25k is only a good idea if either house prices are rising fast or the FTB suddenly comes into money (inheritance/big payrise) and will be able to pay of a good chunk of the mortgage so they can move up.

If prices fall 5% they are screwed, and if prices are static they are still screwed as they probably can't move up either as they can't borrow any more.

We bought in 1997 as FTB with a 40% deposit - by 2001 we'd paid it off AND could afford a real step up.

Compare to my sister in law, bought in 2004 with a similar sized deposit but was only 15% because of HPI. 4 years later has only paid the normal payments on 25 year mortgage and flat didn't go up in value so they can not afford to move up at all.

A 5% was the norm as a deposit for years sometimes 10% why should it be any different now, people have just got to get used to saving again, in the meantime prices will continue to fall and they will have the added benefit of not having to borrow as much when they get a mortgage therefore having a better quality of life.

[Damik]

These kinds of minimum deposits must be killing the whole market stone dead by now surely. First time buyers must be virtually non existent of course, but are there even any ladder-mover-uppers left at these rates? Assuming they'd be looking for at least one extra bedroom at, what, a 20% premium on their current property, then second- and third-time buyers would have to have had over 40% equity in their current place this time last year in order to be able to raise a 25% deposit on the new place from it now. And that's before costs. There can't be many of them around surely?

in 12 months majority of the equity will be gone and everybody will be FTB.

FTB with a mortgage ->

so only your income without bonus will matter

no f...g ladder anymore!

[Damik]

I see what you're saying, but it's simply not true for many people.

Mortgage rationing, as now exists, quite simply locks a lot of deserving people out of the market.

The people with the lowest deposits, the least ability to save, and potentially a few minor blemishes on their credit, are also most likely to be the poorest and/or youngest in society. They will have zero ability to buy a home until mortgage rationing ends, no matter what the price. And as rationing eases, others with higher incomes/deposits will of course be allowed to buy first, thus pushing up pricing, and further pushing away the targets for many FTB's.

There are a lot of young people for whom saving is very difficult, even more so now in a recession. For those people, a £5k deposit on a £100k flat may be achievable, after many years of saving. A £20k deposit on a £70k flat will likely never be achievable.

if FTB can not buy the prices will have to go down. there is no other way ...

my friend bought 1 and half year ago for 520k; he told me: I have to buy now, as I will not get a mortgage next year ...

he forgot that nobody else will get a mortgage like him ....

he already lost 20% of the value of the house and about 70% of the equity ...

the biggest mistake of his life ...

[0q0]

yeah i save 1K each month and its a great feeling knowing that i am getting closer each month to my target, the only annoying this is the tartget keeps getting further away every month

Those working girls, eh.

Expect trough to be Q4 '09, recovery to start Q1'10,

Yeah sure. And would you also believe Kate Winslet daydreams about me.

Edited January 5, 2009 by The Last Bear