Monday, Oct 19, 2009

GRrrrrrr these boys are tough ! LOL

Yahoo: FSA unveils tougher mortgage rules

The Financial Services Authority is also calling for a ban on mortgages containing "toxic combinations" which put borrowers at a higher risk, such as lending a high proportion of a property's value to people with impaired credit histories

Posted by happy mondays @ 08:58 AM (2892 views)
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1. Happy Mondays said...

Whats happened to the 3.5 annual salary ? It's Simples !

Monday, October 19, 2009 09:01AM Report Comment

2. happy mondays said...

What's happened to the 3.5 annual salary ? It's Simples !

Monday, October 19, 2009 09:02AM Report Comment

3. crunchy said...

3.5 annual salary = An even deeper black hole. It's Simples !

Monday, October 19, 2009 09:15AM Report Comment

4. happy mondays said...

Crunchy, for you...

Monday, October 19, 2009 09:22AM Report Comment

5. Dave said...

With this proposed ban on self-cert mortgages and generallly tightening up mortgage availability I wonder if the government would like it to have a similiar effect to the announcement in 1989 that Miras would be scrapped.

As I recall, that announcement started a stampede for mortgages as people wanted to get one before the tax relief disappeared. Is Brown and his stooges at the FSA hoping the same happens this time?

Monday, October 19, 2009 09:30AM Report Comment

6. charlie brooker said...

It's a good thing they're doing this before the horse bolts, I mean: Who knows what chaos could ensue if this sort of information wasn't checked?

Monday, October 19, 2009 09:30AM Report Comment

7. crunchy said...

3. happy mondays

"THE PEOPLES" does not
include you and me : (

It's Simples !

Monday, October 19, 2009 09:44AM Report Comment

8. uncle tom said...

Banning self certs is a good move - the rest looks a bit feeble.

I would like to see a 'standard', 'plain vanilla' mortgage, that enjoys a modest tax break. A repayment mortgage with interest fixed for the full term - 90% LTV max - max income multiple of 3.5 x first salary plus 1 x second; with strict limits on the charging of fees. Maximum term 25 years, or to age 65. Life insurance mandatory.

Yes, even more simples!

The god of consumer choice has proved wanting in this field..

Monday, October 19, 2009 09:50AM Report Comment

9. a saver said...

'But the FSA is expected to stop short of imposing caps on the loan-to-value ratios and income multiples that lenders can advance to homeowners after consulting the industry'.
Pathetic! Talk about too little too late.

Monday, October 19, 2009 10:06AM Report Comment

10. crunchy said...

UT, This is the nearest I could find, but I could not help cherry picking.

This can be levered, hence the spoon.

Monday, October 19, 2009 10:12AM Report Comment

11. growler said...

... and don't forget, in 2007, 50% of all mortgages were self-cert.

This is a smart move and "publically reasonable". Who can argue with it. The fact that the CML came back saying that there was now too much regulation discredits the CML and exposes their self-interest.

Uncle Tom @ 6: I agree with you. But I see the LTV discussion as a way banks can justify loans - when even at 3x the applicant can't afford it. If the FSA apply rules to affordability and banks breach these, I can see a legal case against a bank acting negligently if they lend to someone who can't pay - regardless of LTV. If these banks can say "I met the rules on LTV set by FSA" it would weaken the case.

They should look at every individuals disposable income, affordability, if self-employed 3 years of accounts and actually do some WORK rather than the tick-box application and approval in 30 seconds.

With 50% of all 2007 mortgages banned (self-cert) we will soon get back to affordable houses and have YEARS of a far less "bouyant" property market as those people in the houses winch in their spending to make ends meet from the situation they've put themselves into.

Monday, October 19, 2009 10:15AM Report Comment

12. uncle tom said...

Well done Crunchy - the cherry represents the tax break!

Monday, October 19, 2009 10:22AM Report Comment

13. uncle tom said...


Although it complicates matters, there is a case for arguing that the income multiple limit should exclude perhaps the first £10,000 of income, and then be a higher multiple of the balance. However this might highlight the gulf between the income of the top 10% of households and the rest, so I'm not sure it would be a good ploy.

Monday, October 19, 2009 10:25AM Report Comment

14. crunchy said...


A repayment mortgage with interest fixed for the full term.


Monday, October 19, 2009 10:28AM Report Comment

15. str 2007 said...

What a mess.
I know you guys dont like self cert and I know why, however spare a thought for someone who used one in 2007 that now has a reduced income because of the recession and won't get more lending.

Anyway, this is largely irrelevant as Barclays Woolwich (assuming there is a decent deposit in place will lend 4 or even 5 times JOINT income.
This figure is far higher than anyone can reasonably manage and I'm sure higher than even the Self Certers would have gone.

In fact I don't know why they are offering such a high income multiple.

Unless of course this time round the banks have realised that by increasing income multiple (and hence house prices) they are protecting their current lending by inflating those asset prices) and byth etime these 5 x JOINT mortgages go pear shaped the bonuses will have been banked and it will have become someone elses problem to sort out.

They've also been clearly shown that if there are further problems there's always the tax payer to fall back on.

I posted along time ago about the possibility that interest rates could stay low (2.5%ish) and the B o E start adjusting base rates by 1/4 points instead of the 1/2 points we were used to when base rates were up around the 5% level.
Perhaps the likes of Barclays etc. have wind of the really long term low interest rates and are prepared to lend almost double what they used to, on that basis.

Monday, October 19, 2009 10:37AM Report Comment

16. little professor said...

The link is borked - has no-one tried to read the actual article?

Here it is:

Monday, October 19, 2009 10:58AM Report Comment

17. mark wadsworth said...

They are nuts.

The nuttiest bit in all these articles was the idea that "banks will be made responsible for losses incurred on reckless loans" (or words to that effect).

Well duh, isn't the corollary of that "The taxpayer will no longer be asked to bail out banks who make the reckless loans"? Which sounds like good news to me, but it ain't rocket science.

Monday, October 19, 2009 11:13AM Report Comment

18. timmy t said...

Why can't Gordo just come out and say "I know I said we don't have a sub-prime problem in this country, but I was wrong - and I'm sorry"

Monday, October 19, 2009 11:27AM Report Comment

19. happy mondays said...

@ 16, Because Gordon is a TW*T

Monday, October 19, 2009 11:39AM Report Comment

20. crunchy said...

@ 1, and Simples !

Monday, October 19, 2009 11:45AM Report Comment

21. timmy t said...

Happy Mondays, it was a rhetorical question but I can't disagree with you!

Monday, October 19, 2009 11:57AM Report Comment

22. crunchy said...

Britian is angry.

The world is angry.

Yes, I'm very angry.

Most of us are angry.

Mr Angry is ever so angry.

So much anger yet so little energy.

Phew, I need a break!

Monday, October 19, 2009 11:59AM Report Comment

23. happy mondays said...

Me know timmy t, it's Simples...

Monday, October 19, 2009 12:02PM Report Comment

24. happy mondays said...

@ crunchy, yes your right, & that pressure will need an outlet...The Government & financial elite are walking on egg shells, & i am sure they know it.

Monday, October 19, 2009 12:06PM Report Comment

25. smugdog said...

Crunchy, I'm by no means angry.

Monday, October 19, 2009 12:33PM Report Comment

26. nomad said...

Even Boris has had enough.

Monday, October 19, 2009 12:40PM Report Comment

27. ben said...

Lending multiples have nothing to do with affordability.

My 5 year fixed rate mortgage is 6x my salary, yet I've always easily made the payments plus I manage to put at least £1000 into savings and investments each month.

Monday, October 19, 2009 12:44PM Report Comment

28. ben said...

Yes it is a repayment mortgage.

Monday, October 19, 2009 12:49PM Report Comment

29. happy mondays said...

welldone ben! It's Simples..

Monday, October 19, 2009 12:49PM Report Comment

30. contrails are not a conspiracy (formerly npnh) said...

"My 5 year fixed rate mortgage is 6x my salary, yet I've always easily made the payments plus I manage to put at least £1000 into savings and investments each month."

Not a repayment mortgage then?

Monday, October 19, 2009 12:53PM Report Comment

31. timmy t said...

Ben, by definition, lending multiples and affordability are inextricably linked. You are clearly sensible and manage your money well which is why you don't struggle, but to say they have nothing to do with each other is just wrong.

Monday, October 19, 2009 12:53PM Report Comment

32. ben said...

@29 timmy t,

Indeed I agree that there is a link (So my original statement may have been a bit misleading), but its not a simple linear relationship.

For example, its quite possible for Person A could afford a mortgage at 6x their salary, but person B may not be able to afford one at 3x their salary.

Therefore I think it makes sense to assess affordability and not rigid lending multiples.

Monday, October 19, 2009 12:58PM Report Comment

33. cat and canary said...

@24... very amusing article, as only Boris could write! worth a read

After reading Boris' article and his new-found anger and sharp criticism of the bonus system, I was left wondering, "what was Boris thinking in the first instance?"

Monday, October 19, 2009 01:00PM Report Comment

34. mountain goat said...

smugdog - Crunchy, I'm by no means angry.

What is the secret to your equanimity?

Monday, October 19, 2009 01:01PM Report Comment

35. contrails are not a conspiracy (formerly npnh) said...

Ben, so then I take it that you have an interest only mortgage then? In a falling market? For 6 times your salary?

Well it’s a good thing you are saving £1000 a month! Perhaps you’d be better off with a repayment?

Monday, October 19, 2009 01:08PM Report Comment

36. ben said...


No I do not have an interest only mortgage. I have a Repayment mortgage with 20 years remaining.

I also have a lot of equity in the property (From a large deposit) although I don't think that's relevant.

I just want to make it clear though that I've not posted on here to say "look at me, aren't I great". I just wanted to point out that you can borrow 6x salary and for it still to be affordable, and I'm just one example.

Monday, October 19, 2009 01:24PM Report Comment

37. crunchy said...

32. mountain goat

Equanimity? Not me.

post 20 was a parody of the rhetoric we here everyday from our so called leaders and regulators!

It didn't translate as such. I should have known better.

Monday, October 19, 2009 01:32PM Report Comment

38. contrails are not a conspiracy (formerly npnh) said...

Ben Said “…..and I'm just one example.”

Oh, I see. Thanks for replying. Just as an example then, could you please share (some hypothetical, of course) numbers with us?

I think I must be missing something. I would have thought “6 times salary” is “6 times salary” regardless of if you have 20% or 90% LTV loan.

Monday, October 19, 2009 01:34PM Report Comment

39. mountain goat said...

Crunchy, I meant Smugdog. Like you I feel like Boris J wavering between who to shoot first (but Boris is a political jackal just trying to dissociate himself from being called a supporter of bankers after his resistance to European restrictions on the financial industry).

Monday, October 19, 2009 01:39PM Report Comment

40. crunchy said...


Boris had a habbit of putting his foot in it!

He is as light on his heels now as the colour of his hair, but still needs to lose the weight.

Monday, October 19, 2009 01:50PM Report Comment

41. mountain goat said...

Come on Smugdog, or are you only capable of ankle biting?

Monday, October 19, 2009 02:18PM Report Comment

42. growler said...

Re 6 x salary..

It's a question of definitions....

there's minimum working hours job description salary, there's the real salary, there's "guaranteed" bonus and there's maximum bonus...

Monday, October 19, 2009 02:20PM Report Comment

43. 51ck-6-51x said...

I agree with ben on this one.
It's your disposable income, not your income upon which a multiple makes any sense.
If you are a high earner, you don't drive, maybe you work from home even, you have no kids, you cook your own food, do your own cleaning, are not addicted to buying Jimmy Choo's, etc, etc then you can pay out a much higher proportion of your income on a mortgage.

Monday, October 19, 2009 02:39PM Report Comment

44. contrails are not a conspiracy (formerly npnh) said...

666 said “…Jimmy Choo's, etc, etc…”

OK but what happens when the inevitable children come along, which means you need a car to ferry them around etc etc.. Everything changes and so do the numbers!

Monday, October 19, 2009 02:51PM Report Comment

45. happy mondays said...

Or send the kids off in a home made Helium balloon ! Simples..

Monday, October 19, 2009 02:57PM Report Comment

46. crunchy said...

You buy a smaller house? : )

Monday, October 19, 2009 02:59PM Report Comment

47. ben said...


If you really want the numbers (Not 100% comfortable supplying them, but as there's no personally identifiable info I guess it doesn't hurt):

Salary: 50k
Mortgage: 300k
House 'Value' (As assessed at remortgage time): 500k
LTV: 60%
Mortgage Payments: £1550pm (5 year fixed rate repayment mortgage)

I have no other debts (No credit card debt, no overdraft debt, no purchases on hp etc). If I want something I save up for it and buy it once I have the money... and that includes cars.

I think 666 post 43 got it exactly right... it should be assessed as an multiple of your disposable income, not just your raw income.

Monday, October 19, 2009 03:08PM Report Comment

48. ben said...

Typo, Monthly payments are £1650, not £1550.

Also, the mortgage is 22 years remaining, not 20 as mentioned above (We've lived here for 5 years, but at the last remortgage we increased the term from 20 years remaining to 22 years to give us more protection from my redundancy insurance just incase the worst happens (The reundancy insurance will only cover mortgage payments upto a max of £1500 a month, so we'd still be a bit short)).

Monday, October 19, 2009 03:20PM Report Comment

49. contrails are not a conspiracy (formerly npnh) said...

Thanks for answering but are you sure?

So, some Quick & Dirty calcs:

£50k salary minus (say 25% tax) = £37,500 annual take home.

£37,500 / 12 = £3,125 monthly take home

£3,125 – Mortgage £1650 – Savings £1000 = £475 monthly before bills.

Minus Council tax, energy, insurance, pension etc etc.

Do-able I agree but not saving £1k a month!

Monday, October 19, 2009 03:37PM Report Comment

50. happy mondays said...

Ben, also what should be the main focus, despite how much you earn, is the price of property..i do not know if you have noticed but it's extortionate , now 50k a year is a good wage, but you still must ask yourself am i getting f**ked over here, because for 300,000k around my way will only get you a reasonable 3 bed semi in a ok area, that to me is selling my soul to the devil..Every bodies circumstances are different, but you have to agree we are getting ripped off big time & it's people like yourself ben that are helping keep the wheels of debt turning, so when your / my children grow up, it will not be comfortable to say the least..

Monday, October 19, 2009 03:50PM Report Comment

51. ben said...


I knew someone would do the Math (Rightly so). :-)

Your numbers are not far off actually.

My company pays my pension and I don't contribute (I think I can do better by investing my money elsewhere).

I guess monthly savings are a little lower (Maybe £800pm) just looking at these figures. I do actually get a quarterly bonus plus I do occasional overtime, but I've not included those numbers here (And weren't used to get the mortgage either) which I put towards savings and luxuries.

So, I do always put at least £1000pm into savings, but admittedly maybe £200pm of that comes from bonus/overtime.

Monday, October 19, 2009 03:51PM Report Comment

52. ben said...

@50, Happy Mondays,

I agree I'd like property to be cheaper yes. However, the fact is I can afford a certain amount, so if house prices were say 50% cheaper that doesn't mean I'd spend 50% less... I'd still spend the same amount and get a much nicer house.

I do feel for first time buyers. Its difficult to get on the property ladder, and probably more difficult than it should be.

I took me 2 years of very hard saving to save up for my first house. I bought no real luxuries at that time, sold my nice car and bought an old banger etc, and I was earning a lot less than half of what I'm earning now.

Is it more difficult now for FTB's than it was then? Yes, I'm sure it is.

There are definitely a lot of genuine people out there that cannot save up the required deposit to buy their first place in any sensible time frame, but equally there are some people out there that aren't willing to give up lifes luxuries in order to save up a deposit, or who expect a really nice house as their first property.

I live in the South East where properties are considered to be very expensive, yet there are still flats available for around £100k in the area, which I'd certainly be happy to live in as a first property.

Monday, October 19, 2009 04:02PM Report Comment

53. growler said...

Ben: see post 42 ;-)

Monday, October 19, 2009 04:12PM Report Comment

54. happy mondays said...

Ben you sound like a nice guy, keep saving & make the most of your fruitful situation, because £1650 may not seem alot now, but change is the only constant in life & your circumstances will also change. Good luck ben.

Monday, October 19, 2009 04:17PM Report Comment

55. contrails are not a conspiracy (formerly npnh) said...

@Ben. OK then back to your comment at 12:44…. “Lending multiples have nothing to do with affordability…. I've always easily made the payments plus I manage to put at least £1000 into savings…” which I picked you up on:

You could have said something like “…Those of us with well above average salaries who haven’t been numpties with credit cards etc; we can live just fine… but for the other 98% of the population the situation is very grave indeed. In fact to 98% of sheeple, lending multiples absolutely affects affordability…”

(not sure whether to use effected or affected here… but you get my drift)

and ditto what happy mondays said @ 0417pm

Monday, October 19, 2009 04:28PM Report Comment

56. ben said...

Thanks Happy Mondays,

£1650 does indeed seem a lot now, but inflation should make it seem less so year after year, so in say 10 years time £1650 shouldn't seem too bad (Relatively). Basically I'm happy to go through the pain now so that I'm better off later on.

If it were to lose my job though (And there have been some redundancies at my company) then I'd be in trouble. I have redundancy insurance, which along with my savings would keep me going for quite a while, but I don't know if I'd get another job on similar money for a long time. I could survive on a lower salary, but I probably wouldn't be able to save for my future.

growler, yes I saw post 42. You're right to an extent, although I could still easily save £800pm without the bonus or overtime.

Monday, October 19, 2009 04:29PM Report Comment

57. shipbuilder said...

The problem with lending against affordability rather than earnings multiples is that a house will seem affordable with lower interest rates, but when the rates go up.....also, it will act to inflate prices, which will ultimately reduce the advantage gained, while making things worse for everyone else - those families etc. who actually need a larger house. Lending multiples seems a safer, simpler solution which suits the majority. If someone has more disposable income than average, it should go toward a larger deposit, or paying off the mortgage quicker.

Monday, October 19, 2009 04:38PM Report Comment

58. house said...

@47, Ben your are very lucky to be earning £50k. Not many do. You do not have any other debts. There you go. Also I suppose it is single income and the are no dependants. have always said to people that the only thing they need to borrow is to purchase a property. Anything else you save for it. On £50k per year yes you can do all these things. But when you are earning £20k life is so different.

Monday, October 19, 2009 04:41PM Report Comment

59. contrails are not a conspiracy (formerly npnh) said...

shipbuilder@ 0438. EXACTLY. My parents always told me 3.5 income because interest rates go UP as well as down. People seem to be ignoring that risk at the moment.

Monday, October 19, 2009 04:43PM Report Comment

60. ben said...

@55 "Contrails..."

I agree, I recognise that I'm lucky and I do feel for those that are not as fortunate.

The problem is, if Lending Multiple are an effective tool for the majority but not for people on "well above average salaries who haven’t been numpties with credit cards etc" then what do you do?

Do you have a single set of lending rules based on income multiples that would be overly restrictive for people on "well above average salaries who haven’t been numpties with credit cards etc", or do you have 2 sets of rules? One for the majority, and another for people on "well above average salaries who haven’t been numpties with credit cards etc"?

Personally I don't like the idea of having 2 sets of rules as that seems to create a class based society. I may be on a good salary, but I certainly don't see myself as in some kind of superior class to anyone else.

I like 666's idea, which is basically to look as multiples of "Disposable Income". That works for everyone, no matter how much you earn, and takes into account your financial circumstances, unlike simple Income Multiples.

Monday, October 19, 2009 04:51PM Report Comment

61. crunchy said...

59. People seem to think that they are on the right side of governments and banks.

Monday, October 19, 2009 04:54PM Report Comment

62. ben said...

@ house, 47.

Yes I agree with your comment about interest rates, which is why I went for a relatively long term fixed rate mortgage (5 year).

I actually have a wife, 23 month toddler and another baby due on 3rd November. My wife gave up work to look after the children (As it would cost £2400pm to have 2 children in nursery round my way, which is more than even someone on 50k can afford!).

I've actually found that other than nursery costs, having children isn't as expensive as I thought.Our food shopping bill isn't much more than it used to be, as we just feed the toddler some of what we're having, and to be honest I could do with eating a little less anyway. Nappies are a bit expensive though.

Personally I think house prices will stabilise at some point and from that point on they will only be able to rise in line with average salary inflation. Its simply impossible for house prices to rise faster than income inflation forever. The trouble is, it's not happened yet and the prices are getting out of reach of a lot of people.

Monday, October 19, 2009 05:06PM Report Comment

63. ben said...


I always keep in mind that interest rates could rocket up, and have risen above 12% in the past. Not only that but I think high interest rates are actually quite likely, as the government are likely to try and inflate their way out of debt and then they'll have to use a large dose of high interest rates to try and put the brakes on the inflation to stop it turning into hyperinflation.

Monday, October 19, 2009 05:09PM Report Comment

64. house said...

@62, I understand exactly what you are doing and I totally agree what you are saying. I have similar thoughts as you have and my 2 children are passed teenagers. I did exactly what you are doing now except that I was not earning what you are but we managed. The trouble is many on lower income would like to live as if they are earning £50k. This additional spending was financed by he banks and now everybody has to pay a price because the tax payer is bailing out the banks. The authorities have to get it somewhere right to avoid another bail out as I do not think we can afford it, do you ?

Monday, October 19, 2009 05:21PM Report Comment

65. ben said...

@64, House

I agree with how we got into this mess, and we don't want to do it again, so changes to the rules are necessary. I just think we should us a formula based on "disposable income" not gross income, and of course it should allow plenty of room to ensure that people would still be able to afford their mortgages if interest rates were to rise etc.

In general I try not to be selfish, and think of those that aren't as fortunate as me financially, however from a selfish perspective I am a little worried about whether or not the FSA will specific max lendling multiples based on gross income.

My concern is that the FSA set an absolute max of say 4x gross income, so that when my 5 year deal ends I wont be able to get a new mortgage. I'm sure 98% of the population (To borrow 'Contrails' numbers) out there wont care if people like me get shafted even though they haven't done anything wrong, in fact I'm sure some will be quite happy about it.

If they do set a max lending multiple then I think they should allow people who have existing mortgages at higher multiples to continue to get mortgages at those multiple, but no higher, and as they pay their mortgage off (Thereby reducing the outstanding balance in terms of lending multiples) then they should not be able to borrow more. Basically it'd be a system to allow a smooth transition from the old rules to the new rules.

So for example, if Mr Smith has an existing mortgage for 6x salary and the FSA decide the max lending multiple will be 4x salary, then Mr Smith should still be able to remortgage with a 6x multiple. Then say after 5 years Mr Smith's outstanding balance is only 5x his salary, so he should be able to remortgage at 5x multiples but no higher. After 10 years he's down to say 3.8x his salary... now he should be able to borrow up to 4x just like anyone else.

They need to do the same for LTV too. Some people (foolishly) borrowed 120% LTV... so if the FSA said that the max LTV going forward was say 80% then what happens to these people? They'll be stuck on the SVR for a couple of decades!

Monday, October 19, 2009 05:45PM Report Comment

66. tenyearstogetmymoneyback said...

I've been reading the thread with interest. It's not often people go into such detail about their finances.
A common theme which seems to keep coming up (also on Stepanie Flanders blog) is multiples of
disposaible income.

I have posted before about a friend who in the 1980s had the amount of his car loan deducted
from his income multiple. Maybe that is what we should go back to.

At current interest rates six times salary might be viable but only if the person was (like Ben) debt free.
Also look back at their previous credit rating. There is a danger that people might buy a house then
immediately take out a load of loans but if they are used to being frugal that wouldn't
be likely. You could also apply similar rules to loans credit cards etc.

Monday, October 19, 2009 07:41PM Report Comment

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