Tuesday, Sep 22, 2009

They've fallen by ninety per cent, actually!

Metro: Mortgages for first-time buyers has fallen by 17%

Some interesting numbers here. Maybe Jack C can confirm or otherwise? "The average two-year fixed rate mortgage for someone with a 10% deposit has fallen by only 0.12% to 6.12% since September 2007, despite the Bank of England base rate dropping from 5.75% to a record low of just 0.5% during the same period... But borrowers with higher deposits have fared much better, with rates on two-year fixed rate loans for people with a 40% deposit falling by 1.86% during the past two-years to average 4.49%... The average margins over swap rates on these deals are also far lower at 2.62%, although this is still a steep increase from the 0.13% charged in September 2007." That equates to a 9.38% implied marginal interest rate on the top slice of 30% (i.e. 90% minus 60%).

Posted by mark wadsworth @ 04:34 PM (1246 views)
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15 Comments

1. Burt said...

Just another pyramid layer?

I FTBs
II Stretched FTBs not wanting to miss boat
III Huge income multiples and liar loans for FTBs
IV BTL
V Age of the house hoarder - those with enough equity can get good deals and avoid paying much interest and those with loadaequity can buy another house or give it to their offspring to buy a house
VI Give out free 100k tokens to houseowners so they can buy more houses

Tuesday, September 22, 2009 05:09PM Report Comment
 

2. jack c said...

mark wadsworth - I agree with the moneyfacts findings - just out of interest as a follow up to your posting I input into my mortgage sourcing system the following hypothetical first time buyer clients - Mr & Mrs Example who are both employed full time (5 years in the job) on salaries of £40K each and are looking to purchase a property for £100K with a 10% deposit (90% LTV) - you guy's will soon get the picture I have upped the salaries and went for a £100k 3 bed semi.

A total of 17 deals from only 9 lenders were returned from the system (I would point out that the search was restricted to just broker deals and does not include direct deals)

Abbey have a product - Fixed rate of 7.09% to 2/12/2014 with a fee of £2499 monthly payment £641.28 (5th cheapest by monthly payment on the list)

I hope this sheds a bit more light on what is really going on out in the market place at the moment

Interestingly if the BOMAD (Bank of Mum & Dad) come in with £40k extra deposit this changes things dramatically and I get 592 available deals with Northern Rock topping the list with a 2.99% tracker to 1/11/2011 with a £995 fee and monthly payment of £236.85

Look forward to having a bit more debate on this one of you wish

Tuesday, September 22, 2009 05:24PM Report Comment
 

3. jack c said...

I forgot to mention the mortgage is capital repayment over 25 year term (wish we had an edit facility on this site)

Tuesday, September 22, 2009 05:35PM Report Comment
 

4. James said...

@Jack C.

What about people who are single, who earn average wage?

Or do you think everyone FTB should sponge off their parents retirement funds?

Sounds to me like you are a property professional, because astronomically high house prices only benefit pp's and the taxman.

A house gets repossessed every 7 minutes in the UK.

You tell me why should my taxes bail out the banks who own these properties, so hat these same banks can keep those houses 'off the market' thus making sure house prices remain artifically high?

Sooner or later the majority will overcome the tiny minority of VI's who want house prices kept at unsustainable and Massively overpriced levels of the last decade.

What are you?

An Estate Agent or a BTL or a Labour politician?

Tuesday, September 22, 2009 06:30PM Report Comment
 

5. mark wadsworth said...

Jack C, ta, it's always difficult comparing like-with-like with all the fixed rates and upfront fees and so on, but it seems the interest rate on the first 60% is very low but the marginal interest rate on the next 30% is well over 10%.

Which has to do with higher risk of nequity and these newfangled capital rules that banks need to hold as much capital for one 90% mortgage as they do for ... 60% mortgages. Only I can't remember what the missing number ... is.

Tuesday, September 22, 2009 10:05PM Report Comment
 

6. phdinbubbles said...

@MW
10 is the magic number (from stillthinking's post the other day)

I need to get out more.

Tuesday, September 22, 2009 10:30PM Report Comment
 

7. jack c said...

@ James, I simply responded to Mark w's "Some interesting numbers here. Maybe Jack C can confirm or otherwise?" and attempted to provide an insight into the limited options currently available to FTB's - the example I used was set at the extremes ie 2x 25 yr olds on joint income of £80K buying a property at £100k (well below average house price) with 10% deposit - the idea being that this should throw up the maximum number of available mortgage deals which I'm sure you agree is very limited from the search I conducted - hence I agree with the moneyfacts findings ie limited deals that are expensive in relation to Base rate of 0.5%.

in response to your questions

Q1) What about people who are single, who earn average wage?
A1) Sadly I find they are generally priced out of the residential property market

Q2) Or do you think everyone FTB should sponge off their parents retirement funds?
A2) I think it is matter of personal choice if FTB's and parents elect to use their collective finances to purchase a property

Q3) Sounds to me like you are a property professional, because astronomically high house prices only benefit pp's and the taxman.
A2) I am not a property professional

Q4) A house gets repossessed every 7 minutes in the UK.
A4) A sad statistic and one which could have been avoided if lenders (and borrowers) had been more responsible

Q5) You tell me why should my taxes bail out the banks who own these properties, so hat these same banks can keep those houses 'off the market' thus making sure house prices remain artifically high?
A5) UK Taxpayer money was used to bail out the Banks because it was neccessary to do so - techieman has provided the background to this on many occasions but basically if the banks failed then businesses etc... would have been dragged down with them. I'm not so sure if a Bank takes possession of a property that they are hanging onto it as you imply - in my experience it usually ends up on the market via auction.

Q6) Sooner or later the majority will overcome the tiny minority of VI's who want house prices kept at unsustainable and Massively overpriced levels of the last decade.
A6) The market will correct - house prices are too high on every measure - Uncle Tom and a few other regulars point this out much better than I can month in month out.


Q7) What are you? An Estate Agent or a BTL or a Labour politician?
A7) None of the above - those that follow the site regularly (titanic captain, str2007 etc...) know what I do

Hope this helps

Tuesday, September 22, 2009 10:42PM Report Comment
 

8. ant said...

It is nothing surprising. Just read: http://gregpytel.blogspot.com/2009/09/borrowers-are-bailing-out-banks.html It explains why things happened this way.

Tuesday, September 22, 2009 10:53PM Report Comment
 

9. it_is_going_with_a_bang said...

Why bail the banks? Oh thats easy money makes the world go around ...
If they werent bailed out we would have turned into Argentina 10 years ago - not a nice thought.

If you want to do something about it vote for the opposition - I don't care which one. It not a political thing you see.
It is called having your say and letting someone know you're not happy. Vote the government in power out on principal.

Tuesday, September 22, 2009 11:41PM Report Comment
 

10. uncle tom said...

Why do we keep getting these meaningless stories about the number of mortgage deals available?

Are we supposed to feel good when the mortgage lenders are trying to confuse the borrower even further??

My feeling is that there should be a 'plain vanilla' mortgage, that embodies the principles of both responsible lending and responsible borrowing; one that enjoys a small tax advantage, to make it the dominant 'normal' package in the market.

That mortgage should be based on:

1) Maximum income multiple: 3.5 x First applicant income, + 1.5 x second applicant income (max two applicants)

Income should be defined as "The gross income declared for tax, averaged over the previous three tax years"

The HMRC computer system should be configured to be able to generate an income certificate for mortgage applicants.

Applicant(s) must also provide evidence to justify that their income going forward is not likely to be less than that of the previous three years.

2) LTV: 90% max

Term: Max 25yrs or to age 65 of oldest applicant

Type: Repayment

Interest rate: Fixed for the full term of the mortgage

Fees: Max arrangement - 0.1% or £100 if greater. Max early redemption - 0.2% or £200 if greater

Life insurance: Mandatory. To cover full redemption on death of first applicant, or 75% redemption on death of second applicant

All other variables can be optional offers by the mortgage lender.

With that on the table, why would their need to be thousands of deals available?

Wednesday, September 23, 2009 10:01AM Report Comment
 

11. ant said...

@uncle tom: these comments are quite sensible and are good guide for awarding mortgages on an individual level (by loan to income and loan to value ratios). Yet they do not stop by itself lending with loan to deposit ratio above (or equal) 100%, which guarantees liquidity crisis with 100% probability (certainty) in a finite time. For more please refer to brief analysis of The Turner Review:

http://gregpytel.blogspot.com/2009/04/turner-review.html

and to learn about the mechanism that causes a liquidity crunch please refer to "Loan to deposit ratio and banks liquidity"

http://gregpytel.blogspot.com/2009/09/loan-to-deposit-ratio-and-banks_02.html

Wednesday, September 23, 2009 10:23AM Report Comment
 

12. jack c said...

UT - the number of mortgage deals and the mumber of available lenders has declined significantly since 2007 - in simple terms it isnt as easy to raise the finance to purchase a property as it once was - this has a direct influence on prices. I agree the mortgage market is confusing and made deliberately so (IMO) by the lenders.

Your 'plain vanilla' mortgage deal sounds fine to me - of course it would be a much more restricted market place based on your tight criteria and as a consequence this would force prices down. The only other thing I would bring in to your mandatory life cover would be Critical illness and income protection ins (people are much more likely to suffer financial hardship if they suffer a seriuos illness or disability)

With that on the table, why would their need to be thousands of deals available? - (IMO) no need for thousands of deals - keep it simple as they did 25 years ago - job done.

Wednesday, September 23, 2009 10:24AM Report Comment
 

13. mark wadsworth said...

PhD, ten it is then, thanks.

Wednesday, September 23, 2009 10:40AM Report Comment
 

14. need-a-crash said...

jack c @2. Thanks for the analysis of how bad the deals are at 90% LTV even if the loan is a low income multiple.

In this situation where Mr & Mrs Example have £80k joint income for a £100k house, surely it would be well worth their while borrowing off the Bank of Mum & Dad in order to buy the property because they could easily afford to repay Mum & Dad with interest?

I know we all like to attack people for borrowing off BoM&D but some people do repay this money you know!

Wednesday, September 23, 2009 10:46AM Report Comment
 

15. jack c said...

@need-a-crash - in the Example case it would be worth them borrowing from the parents - they could probably do a deal where everyone benefits ie the FTB's pay less interest to the parents than they would to the lender and the parents potentially pick up more interest than they would from ordinary bank deposits. In my experience most parents are prepared to assist their children and are not looking to make a profit and I accept lots of people do repay in full family loans ( my parents did this 50 years ago !)

I'm very neutral about all of this as I think it's a matter of personal choice and preference.

Wednesday, September 23, 2009 11:07AM Report Comment
 

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