Wednesday, Nov 01, 2006

Big news of the week!

BBC: Five-times-salary mortgage offer

Abbey, Britain's second largest home loan provider, is offering borrowers five times their salary in order to help them get onto the property ladder.
The bank is making the offer available to individuals or couples with a 25% deposit for their house and an annual income of 50,000 or more.

Posted by tyrellcorporation @ 08:21 AM (7864 views)
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43 Comments

1. tyrellcorporation said...

'In some cases Abbey will now lend couples five times each of their salaries without requiring confirmation of earnings.' (FT.com)

Utter madness!!!

Wednesday, November 1, 2006 08:40AM Report Comment
 

2. waitingfor hpc said...

this is old news ... was in an estate agents 5 weeks ago and she told me average mortgage she saw was 6x , and in london it rises to up to 10x.

Wednesday, November 1, 2006 08:41AM Report Comment
 

3. denzil said...

tyrell said:
"In some cases Abbey will now lend couples five times each of their salaries without requiring confirmation of earnings.' (FT.com)"

I can confirm that Abbey offered me just over 5 times joint and did not take any steps to confirm earnings. I was however prepared to place a large deposit which would have meant they were safe should I default. My comment to the guy was, "I'm not quite crazy enough to borrow 5 * joint as that would be totally irresponsible." I think he got the message. Irresponsible lending is most like the pump behind the continuing inflation of the property bubble.

Wednesday, November 1, 2006 08:53AM Report Comment
 

4. sovietuk said...

I'm really looking forward to it all going wrong. It's going to be excellent.

Wednesday, November 1, 2006 09:23AM Report Comment
 

5. So Soon said...

I believe specialist lenders have been offering five and six times salary for sometime. I assume the Abbey somehow thinks its losing business. In my view most mainstream are giving five times salary and more under the guise of not confirming salaries anyway, although they will have the option to start criminal proceedings once it all goes pear shaped. Unlike the Abbey who will be hoping there customers 25% deposit isnt breached or there hasnt been too much fancy footwork with new build purchases.

Wednesday, November 1, 2006 09:48AM Report Comment
 

6. Nohpc said...

Soviet you are an evil little person aren't you.

Wednesday, November 1, 2006 09:50AM Report Comment
 

7. Gordenbrownkilledtheeconomy said...

Some companies within the sub prime mortgage sector have been offering 5 times income multiples for at least the last 2-3 years so as memtioned above this is very old news.

I would also like to put forward the idea that even with high street lenders it is possible to get much higher mulitiples than true income. Self certifcation is often used as a way of grossly inflating true income to make a mortgage look affordable

Wednesday, November 1, 2006 09:51AM Report Comment
 

8. kpjcomp said...

sovietuk,.

Correct, it's going to become a bloody mess. Hopefully irresponsible lenders like Abbey will be the banks to go under.
The thing that worries me, the banks have had plenty of time to cool the property market, and now not only will house prices pop, our ecomomy is going to get smashed to pieces.
I soppose Abbey's top men won't give a monkeys, as they'll have there City bonuses to leave the country with, and there shareholders will be trying to find the largest building to climb.

Wednesday, November 1, 2006 10:19AM Report Comment
 

9. little professor said...

My post at the weekend went unnoticed - the UK arm of General Electric Money is offering people upto 7.5x salary.

http://anmblog.typepad.com/this_is_money_blog/2006/10/lender_offers_o.html
http://www.housepricecrash.co.uk/newsblog/2006/10/blog-banks-throwing-money-at-ftbs-1591.php

Wednesday, November 1, 2006 10:37AM Report Comment
 

10. Nohpc said...

Somehow I think the banks will be okay kpjcomp.

Wednesday, November 1, 2006 10:37AM Report Comment
 

11. sirgoogle said...

sovietuk & kpjcomp

I do not beleive that it will go wrong as badly as we would all wish.

There are too many people chasing too few houses currently on the market. This increased multiple for mortgages is the first of the games that the banks will play to keep the cash rolling in. If there is an IR rise in Nov (not at all a certainty) I predict that extended length mortgages will be the next trick the banks will play to keep monthly payments down - just like in the last boom when I took out a 40 year endowment (which I still have - although I got rid of the mortgage ages ago). I predict that the market for long term mortgages will be like Germany in the 60s/70s (I think it was then) when 120 year mortgages were common. Although madness - it will lead to an improvement in building standards !!

If there is an HPC some people will be saddled with negative equity for a very very long time - and this will also hurt the banks - so my guess is that lending criteria will be tightened but the amount you can borrow will continue to rise - based on extended payment periods (a new form of slavery/serfdom).

Wednesday, November 1, 2006 10:44AM Report Comment
 

12. little professor said...

Have Your Say here:
http://newsforums.bbc.co.uk/nol/thread.jspa?threadID=4617&&&edition=1&ttl=20061101103723

"Hold on a second, if a couple earning 50k a year can't get a mortgage for 250k what are they going to do? Rent? Well, the rent on a property of that value is going to cost them pretty much the same as the mortgage payments but nobody seems to worry about that. Keeping a roof over your head today is a very expensive business if you are not already on the property ladder, the Abbey are just offering customers a way out of renting accomodation."

"anything that keeps house prices high is good for me - I've owned a house for over thirty years and am revelling in the profits."

"The average house price is 199,184, the average salary around 24,000, so lending 5 times an average salary still only gives you 120,000; so you require two people to be on about average salaries to afford an average house - what if one partner chooses not to work because of children etc.
Also, the repayments on 120K over 25 years are around 700 per month; On an average wage after tax/ni/student loan you take home around 1400pcm; out of which 50% is gone on the mortgage, when interest rates are low!!"

"Gordon Brown has one agenda and that is to keep people spending so his economy looks good. That is why financial advisers are being regulated to death yet the banks are being left free to hand out loans left right and centre with no regard for the financial welfare of their customers. At 5x income all it would take is a 0.5% increase in the base rate and most borrows would default within months. Disgraceful."

"Anyone who's old enough to remember the interest rate hikes and subsequent repossession horrors of the 1980s will be wary of financially extending themselves to this degree."

Wednesday, November 1, 2006 10:45AM Report Comment
 

13. inbreda said...

Dammit ! I'm getting sick of moving my money around. I guess this just pushes me into converting more cash into more gold. The banks can't be relied upon.

Wednesday, November 1, 2006 10:59AM Report Comment
 

14. kpjcomp said...

>> Well, the rent on a property of that value is going to cost them pretty much the same as the mortgage payments but nobody seems to worry about that.

No were near!!!,,.. I can rent a 5 bedroomed detached house near us for 695. Currently 5 bedroomed detached houses are going for more than 250K.
So a mortgage at 5.2% for 250K (if you can get it without silly setup-fees) = 1507 per month,..

Mortgage = 1507
Rent = 695
Mortage cost 2.17x more per month, and extra 812.

Even when using interest only, it's 1083.

It used to be the case that buying a house was'nt much differrent to renting in terms of cost, but that's currently not the case.


Wednesday, November 1, 2006 11:13AM Report Comment
 

15. sirgoogle said...

Kpjcomp...

Thanks for highlighting the widening gap between renting and buying. Unless a BTL has brought with a lump sum (ie no mortgage) the BTL land lord will be subsidising the tennant !!

This goes to prove that the siren cries of the media to stir up the FTBs to buy-a-house-or-be-left-behind-forever are hype only. I hope that FTBs will look at the renting option more seriously - as many on the Continent (esp Germany and Netherlands which I know) rent quite happily for their entire lives and still manage two holidays a year!!

Wednesday, November 1, 2006 11:27AM Report Comment
 

16. Me said...

That is not a very realistic example. My 248k repayment mortgage is 1504 per month, and the rent for a similar house (in north London) would be approx 1200, roughly equivalent to the interest element of my mortgage payments. Rent maybe cheap in some parts of the country (where historically people have not rented) but in London there is not the same difference in rents to mortgages.

Wednesday, November 1, 2006 11:39AM Report Comment
 

17. sovietuk said...

Just a quick reflection on the supply and demand issue. I was down at the dentists this morning and while I was sitting in the waiting room I was reading a magazine with an article about Eastern Europe. Property prices have been going up significantly there for some time but the population is actually dropping quite rapidly in some of these countries. Not exactly the same set of conditions as here in the UK but it does make you think that the availability of cheap money is the main driving factor in pushing prices up here.

Wednesday, November 1, 2006 12:00PM Report Comment
 

18. sold 2 rent 1 said...

sovietuk,

There are big problems building up there.
A lot of people are borrowing is Swiss Francs to buy houses in Hungary.

Wednesday, November 1, 2006 12:31PM Report Comment
 

19. Time To Raise Petrol Prices said...

This is a load of tripe, in many respects. I'm an IFA by day, so I have access to Abbey's rate guide, and I can assure you that the only people getting access to a 5 x income multiple are those people with a joint income of more than 60,000pa and a high credit score. Everybody else is tiered from there. I'd be happy to provide more detailed info if anyone is interested?

Wednesday, November 1, 2006 12:35PM Report Comment
 

20. japanese uncle said...

This should be regarded as a kind of market failure, where people who basically cannot afford to, thus ought not to buy any house (in the current mad market) are forcefully induced to do so by extremely risky mortgage arrangements. In any market, if a buyer has acceess to unlimited source of finance to buy specific goods, the same would happen, and the market equilibrium won't be reached, unless such such crazy source of finance is exhausted.

Wednesday, November 1, 2006 02:00PM Report Comment
 

21. sirgoogle said...

JU

We need the BoJ to put up its Interest Rates much higher for the cheap-money supply to be reduced.

Wednesday, November 1, 2006 02:44PM Report Comment
 

22. george monsoon said...

The lending criteria is based on two wages. What if Mrs Joe Bloggs wants a family? childcare costs, loss of earnings, extra outgoings will all have a huge impact on the couples ability to repay a mortgage loan of 5x joint annual wage.

It looks like the population may start to shrink.

Wednesday, November 1, 2006 03:17PM Report Comment
 

23. sirgoogle said...

Geotge M. This is soooo Ironic.

Mr & Mrs Bloggs buy a nice 3 bed so they can raise some children - but wait ! Mrs Bloggs has to keep working to keep the house - so they decide not to have kids after all. One of the bedrooms remains as a spare room while the other is turned into a office so Mr Bloggs (who is working his nuts off) can carry on working at home over the weekend so he can shine at work so he does not get fired when the jobs go East. Mr and Mrs Bloggs don't see much of each other, IR rises cause more stress so they work longer hours and only have a hot meal in the canteen at work. Eventually they get divorced and sell up - and get apartments.

What a miserable future we all have in store.

Does anyone have a happy ending to this tale?

Wednesday, November 1, 2006 03:26PM Report Comment
 

24. holding out said...

No happy ending as BOJ is leaving it's rates put.

http://www.rte.ie/business/2006/1031/japan.html

Wednesday, November 1, 2006 03:30PM Report Comment
 

25. indiablue19 said...

Did anybody else see the managing director of Abbey on news this morning? He was asked straight out about five, and more, times salary being viewed as an OK mortgage multiple for borrowers and how this is ethical?....how can the Bank do this in all good conscience? His reply was that it isn't the Bank's problem if people don't know what they can afford and, apparently it would follow, if the nation goes belly-up due to huge amounts of irrational debt and the banks with it -- this won't be his problem either? OMG.

Wednesday, November 1, 2006 04:10PM Report Comment
 

26. inbreda said...

Yeah IndiaBlue - I saw it on Channel4. Krishnan Guru Murphy I think. The Abbey guy looked shifty as hell. Don't think they expected the torrent of negative press this has actually produced.

Wednesday, November 1, 2006 04:33PM Report Comment
 

27. rocket robbie said...

Sovietuk.. I think your comment 'im really looking forward to it all going wrong. Its going to excellent' is out of order. Most people on this site want a crash including me but i dont revell in the idea of other peoples dimise like you seem to. What your saying is i dont mind if families lose their home and live in a bus shelter as long as it suits me. Im sorry if iv mis-understood your comment but thats how it seems.

Wednesday, November 1, 2006 04:38PM Report Comment
 

28. sovietuk said...

rocket - lighten up mate it's a blogg

Wednesday, November 1, 2006 04:50PM Report Comment
 

29. Rocket Robbie said...

I know, but come on will it really be that great to see people in finacial misery? like i said i want a crash so that i can buy a bigger house but the other part of me thinks if HPC does happen i will have a lot of friends in a bad way. You could say they only have them self to blame but as everyone on here keeps pointing out their is a lot of plate spinning going on.

Wednesday, November 1, 2006 05:06PM Report Comment
 

30. rocket robbie said...

I know, but come on will it really be that great to see people in finacial misery? like i said i want a crash so that i can buy a bigger house but the other part of me thinks if HPC does happen i will have a lot of friends in a bad way. You could say they only have them self to blame but as everyone on here keeps pointing out their is a lot of plate spinning going on.

Wednesday, November 1, 2006 05:08PM Report Comment
 

31. Superruss said...

rocket bubble, I've spent the last 5 years watching my chance of living in a house I own dissapear into the distance at about warp 9, thanks to the said firestokers. I'm sure there will be plenty of paper money floating around when the dust settles for them to make a nest in an (unconverted) barn somewhere....

Wednesday, November 1, 2006 05:21PM Report Comment
 

32. Nohpc said...

THe bank of japan may even have to reduce it's rate back to zero again. Their economy is starting to "wobble" again according to the BBC. Countries increase their interest rates to look after themselves not some house price crash believers in the UK so I wouldn't keep hoping for them to increase rates.

Wednesday, November 1, 2006 10:14PM Report Comment
 

33. indiablue19 said...

Rocket Rob....

The thing that occurs to me in this scenario is that the sooner this madness gets over with the more might actually survive it. Thus a real reason to cheer on the crash. The higher this balloon goes into the stratosphere, the more are buying tickets and climbing aboard for the disaster. The longer the charade continues, the more buyers fall for the crazed logic of bankers who say "it's your problem if you can't afford it" as Abbey, Barclays, HSBC, and others who offer impossible mortgages to the unwitting -- in the face of an IR hike that WILL COME. There are too many fronts to protect in the economic life of the nation to think that the government can endlessly keep rates shut down. And, when it is in the mega-bankers' interest, they will collapse the house of cards, take the losses, and sell the houses on to somebody else. It may seem ghoulish to remark on this in advance; but in large part, this blog has focused on trying to warn people, while keeping each other from jumping in to a losing game and risking all. Most of us hope the end will be soon before the crisis is even more advanced. In my mind, to see the end possibly in sight, this is the reason for celebration. Every day the consequences of the irresponsibility of both the government and banking policy grow.

Wednesday, November 1, 2006 10:22PM Report Comment
 

34. indiablue19 said...

Nophc....

The Banks will be alright???? What proof is there of that

Have a look at what happened in the USA when savings and loans banks were permitted to offer insane mortgages during the 1980s, on behalf of the government financial legislation of Fannie Mae and Freddie Mac. In 1989 the property market crashed and all of those banks are gone. Supposedly depositors were insured up to $100,000 by the Federal Deposits Insurance Corporation. What a crock! Investors walked away with 30 cents on the dollar if they got there right away the morning the doors closed. Many depositors who thought they were covered completely for investment lost were bankrupted as well. You are demonstrating a lot of faith in what can quickly become thin air.

I remember this one quite well because my parents' retirement savings were in one of the S&Ls and my Mother heard something odd on the news and they went down the same day, took their money and put it in a federal reserve bank. Three days later, everything crashed. How did she know? I think because they both were born as the US was still recovering from the depression of 1929, they never forgot how their families suffered, and they developed a sort of sixth sense about financial risk. Take a hint. Many people on this blog have seen and suffered through other crashes.

Wednesday, November 1, 2006 10:56PM Report Comment
 

35. Nohpc said...

But banks are making billions of pounds a year these days. And with mortgages they always have the property secured on the loan so they can recoup a fair amount of the money unless prices crash by 50% +
And Indiablue. Life is full of ups and downs that's what makes it fun. At the end of the day a crash is just a crash.. not the end of the world. I have plans for both outcomes in any event. Don't you think boom and bust will always be the way in the modern world? Will people ever be satisfied with unilateral steady growth? They won't because it is in human nature to boom and bust in my opinion. If the housing market doesn't bust something else will . We just have to wait and see.



Thursday, November 2, 2006 10:39AM Report Comment
 

36. indiablue19 said...

Nohpc....

You are obviously at the beginning of your life with time to account for mistakes. Do you have children? How many? Do you have elderly relatives depending on you? Anyone expecting a child? How about kids in Uni? How about family who are ill and can't work? Many others of us are not in your position of being so foot loose and fancy-free. Whether banks are making billions or not, they too have billions of debts to default and then they will have nothing. It's true, they may dissolve their establishment, change their names and move to another country, as may some of the larger construction companies. Those individuals who are bankrupt likely won't be so lucky.

Read up on the crash of 1929 in the USA, caused by Britain by the way, and you will learn a great deal. Extraordinarily wealthy people who thought they had all the contingencies covered jumped from tall buildings. Don't think we are impervious. None of us is.

Thursday, November 2, 2006 05:24PM Report Comment
 

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