Friday, February 27, 2009

Finally An Article Saying The Fsa Are Considering Limiting Lending To 3.5 Income

Mortgage borrowers face restrictions on income multiples and minimum deposits

An article I have been waiting for for months and finally some common sense seems to be filtering into the system , Lord Turner said: "The issue [is] whether we should regulate maximum loan-to-value or loan-to-income, because actually loan-to-income is a slightly better predictor of whether people get into trouble than loan-to-value. WELL DONE THAT MAN GIVE HIM A GOLD STAR. As I have been saying ALL week now all we need to hear is that the FSA are going to fix 3.5 and 2.5 for 2 incomes and we will know EXACTLY what is about to happen to house prices, and then sadly House price crash will be no more. Sadly only in as much as you have proven such a support through such a dreadful time . Can I just add that on one of the blogs there is an e-petition to sign on this very issue

Posted by kathryn layard @ 10:36 PM (1360 views)
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13 thoughts on “Finally An Article Saying The Fsa Are Considering Limiting Lending To 3.5 Income

  • No. No. No. The ability of non-houseowners to buy will be destroyed, sure. With average male full-time earnings at ca £25k house prices should drop to ca £100k. But with rents at say £600 pcm, yields will be over 7%. So housing will be bought up en masse by investors and speculators who will out-bid would-be ftbs, permanently pricing a whole generation out of housing. This might sound attractive but the unintended consequences will be catastrophic, particularly with interest rates so low.

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  • The subject of “what went wrong and what to fix” has been on here a lot – maybe m’lud has been reading HPC website to in the words of new labour “mine creativity” and also much like new labour, repackage them as their own ideas. 🙂

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  • This is common sense. I’m glad the FSA feels it has the mandate to do what it clearly (said it) wanted to but was too afraid. I bet this gets watered down… a ‘guideline’ rather than a rule. The Banks will argue ‘what about bonus’ ‘what about the self employed’ ‘what about creative underwriting based on future earnings (How Tony Blair got his house)’…

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  • it_is_going_with_a_bang says:

    What they would be ensuring is a continued house price crash of at least another 20 / 35 % of todays value’s.
    They would also be putting a lid on any further house price increases after reaching that level. Effectively linking house prices to salary.

    It’s a great idea but not exactly a vote winner. Big business won’t like it either. The last 2 booms in the UK have been all about house price increases – the 80’s and the late 90’s onwards. A strict regulated plan would prevent this from occuring again.

    Can’t see it happening unfortunately – it makes too much sense.

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  • No No No!

    Loan-to-income will not be adopted. What are you talking about? So many key people invested in property, loan-to-income will take down the properties 50% . 3.5 the salary right?

    loan-to-value? deposit 10-15% that is nothing, easy to outsource the deposit and still keep on bubbling.

    What about adopting both loan-to-income and deposit so we go back to real economics?

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  • We had this place in the first place, there would been a much smaller chance of a house price bubble and lots of homewownders would have avoid negative equity as prices would grown in line with what was affordable. But this is the excactly the type policy we need to aviod at least reduce the risk of future crashes to prices and the economy.

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  • To me this really doesn’t make sense. It’s all very well saying that someone should only borrow 3.5x their wages, but peoples costs aren’t linear. For instance, it may be true that someone on minimum wage perhaps could afford to pay no more than 3.5x their wages but someone on 40k can certainly afford to borrow more than 120k. The big fixed living costs (food, council tax, energy, etc) are all fairly static amounts. If someone on 40k wants to borrow 4.5x their wage and they can afford it, who is to stop them?

    I *could* service a debt of 6x my wages. We don’t spend much and always have a lot of money left over after every month. I would like to borrow 4.5x my wages, giving me a comfortable buffer of several hundred pounds a month. Perhaps a better answer is that the ‘affordability’ calculations need formalising and regulating to ensure they are affordable, rather than restrict income. Otherwise, I’m forced to a position where I have to buy and sell 3 houses in 10 years just to get one house which is suitable for my family.

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  • Eternal Sceptic says:

    To limit advances to the maximum of 3.5×1+1×1 for a couple will crash the average house price to approx100k. Will anyone have the audacity/courage to do this? I doubt it. Too much distraction on publicising pension payouts rather than concentrating on the financial abyss opening up in front. The truth of what is happening is out there somewhere and just being drip-fed to us all.
    It could well be in a years time events will have moved so far that only worrying about affordability/negative equity will be right on the backburner and more pressing events will take precedence.

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  • The 3.5 loan-to-income should apply to investors as well. Is it not risky to lend to a person with a 25 000 salary to invest in few houses that may rent out or not?

    Investing is good but not in already built houses as it creates nothing. It is not an economic activity that government would be interested in as it creates no jobs and does not help the UK compete internationally. So investing is good in building new homes, I mean better homes and even environment friendly if possible. That is what I call real economics.

    Same should apply for foreign investors, easy money is not longer available in any part of the world nowadays but still those investors must be credit worthy as well.

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  • For those that have replied to this article with “well I can afford 6 x’s my income” I am surprised that you cannot see that that is the kind of thinking that got us ALL in this mess, affordability, as the current situation confirms , HAS to be right across the board, but you also seem to fail to take into account that the BIGGER houses will tumble as well, so you may well not to have to buy and sell 3 times to get into the SIZE house you want, but the actual fairness of the system allows other people how can’t “easily afford” 3 x’s income let alone 6x’s income to also buy a home for their family. (Often not based on suitability but affordability). It is because there has been a HUGE ammount of easy money and high earners etc that ordinary people have been forced out of the market. As we rebuild our economy, as the news of the past few weeks also confirms, (and this was echoed at Davos this year and last), we have to consider EVERYONE for the system to work, we HAVE to move away from “I am OK ” thank you very much, and this has NOTHING to do with jealousy over people with money etc, but sensible economics. As for investors buying UP ALL THE HOUSES if they dropped to £100k because that would represent a 7% investment, it didn’t happen in the past, and in any case RENTS ARE FALLING, BTL market is falling appart, rents are based on house prices as are building costs, all have inflated in the past 10 years. The TRUTH is, and this has been echoed by the FSA in 2 articles this week, the country CANNOT AFFORD to sustain a housing market that grew 190% in 10 years. US housing market only grew 78% and has dropped nearly 50%. Take a trip around a few random mortgage websites, they are already saying 3.5 x’s income , rejoice in the fact that you have so much money in your pocket whilst so many have so little, but PLEASE do not ever believe you deserve more than anyone else, we all share in the world we are creating every day and we all need each other to sort this dreadful mess out.

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  • this is pure communism now

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  • At last some sensible talk. This will drive prices further down and it’ll be painful for those who have paid silly money. But unless FTBs get back to buying houses then those who raise confidence in the economy in general – young people will be waiting and the rest of our economy will stagnate and die.
    The government should recognise that houses should be homes and using them as investments is nonsense. The government should actively act against buy to let and people who look to profiteer from houses in general.
    The quicker we reach the true house price level which is some way to go the quicker we can all move on and start to get the country on the move.

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  • @Liddiard

    A very idealistic view, but in reality that’s not the way the world works. The truth is I couldn’t give a rats about people failing. Neither could anyone else on this site. Someones success is someone else’s failure in housing where for every winner or loser is there is a corresponding loser or winner. For every person who benefits from a boom or bust there is someone else who loses out.

    All I’m saying is I should be able to decide what I can afford. The bank should be sure that they ask for enough deposit and set a limit on income multiples themselves to ensure that those loans are secure. Beyond that, there is no need to place an arbitrary and artificial limits on what can be borrowed to buy a home. This is true as long as I’m not priced out by someone who borrows to buy something they can’t afford.

    Graham

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