Friday, March 20, 2009

Nothern Rock still lending 4 1/2 times one salary

Northern Rock: Still lending madly

The FSA sent a LOUD message this week to lenders that once prices fall they will regulate on 3x's income if lenders start to lend irrepsonsbily again, that is failing to keep prices keeping pace with wages. Today there was criticism of the Rock lending out over 1 billion irresponsibly after the government bail out, yet surely any politician / reporter or lender suggesting anyone should take a mortgage on a property that is not at least 40% below peak is IRRESPONSIBLE. As is suggesting to FTB's that loan to income ratios fixed at 3x's once prices have fallen in line with income is not THE BEST NEWS FOR FIRST TIME BUYERS. Why would anyone think that regulation and keeping prices in line with wages is not the best thing that can happen for any future buyers?

Posted by sybil13 @ 04:41 PM (845 views)
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4 thoughts on “Nothern Rock still lending 4 1/2 times one salary

  • “Why would anyone think that regulation and keeping prices in line with wages is not the best thing that can happen for any future buyers?”

    That would be the EA, BTL and VI brigade who wants to inflate house prices. Anyone who is sane enough and has an ounce of thought for future generations wants house prices to fall in line with wages and have mortgages regulated vigorously so another bubble isn’t repeated again. Houses should be seen as a place to live in and not as an investment.

    It sickens me when I think of the many FTBs who have suffered due to the HPI and then the EA, BTL and VI brigade have the cheek to moan and call mortgage regulation suicide. Perhaps future EAs should have a suicide booth…

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  • re-post from 2 articles below

    I doubt prices will rise, just the number of sales. But this activity is IMO purely based on the fact that money is cheaper than it’s ever been before.

    If you look at a repayment mortgage (as against interest only) then the repayments are still quite high.

    The trouble with this labour government is they knee jerk react to things without making sure the measures are in place for the knee jerk reaction to do any good.

    Example.Take over Northern Rock because its business model has collapsed and the irressponsible lending (125%) has got out of hand. And what happens, NR carry on selling that product for a further 6 months.

    They drop interest rates to next to nothing. This should allow people to clear down debt. But they don’t ban IO mortgages before they do it, so as fast as one lot are clearing down debt, another lot are taking on IO mortgages and running it back up again only to create problems 2 years down the road.

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  • Backtobasics says:

    When are people going to realise that its bnothing to do with loan value to income ratios that matter but loan price to income. I live in France, where a bank cannot lend, by law, more than 33% of salary towards a housing loan. With a low interest rate, that means that the resulting loan value to income will be higher than with a higher rate. With a 20 year mortgage, effectively the loan value to income is about 3, but for any shorter term such as a mortgage extension for a bigger place, it would be much less. When I see these UK loan value to income multiples I dont know how people are able to do anything other than pay the mortgage, just, which is useless for driving demand in the economy outside the building and DIY sector. In France, variable mortgage rates are now almost impossible to find as French banks see them as too risky. Prices have gone up too much in France due to over long mortgage periods and a rapid conversion of renters to buyers, but at least they have not been driven by insane, uncontrolled lending way beyond people’s affordability. Given that the pound is being trashed in order to drive short term export driven profits but creating long term commodity price inflation due to rapidly rising imported raw material costs, the UK BOE rate will one day have to rise quickly in order to save the pound and then the housing rates will go up quickly with it. In that case, the sensible loan value to income ratio will have to be even lower to ensure affordability. The UK and US caused the global recession by deliberately allowing most of their populations to live way above their means; given the influence of the UK and US financial centers, the rest of the world is now paying the price of this greed.

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