Thursday, June 6, 2013

Another banking crisis

Bank of Mum and Dad runs out of money as soaring numbers of young adults struggle to buy their first home

Millions of parents are ‘unable or unwilling’ to help their children, a crisis being made worse by banks demanding massive deposits. Many parents can afford to lend a small amount of money, but the record deposits required by banks or building societies to get the cheapest loans means that far more money is needed. The size of the average deposit put down by a first-time buyer has jumped, as the number of ‘unassisted’ first-time buyers has collapsed. In 2006, the average deposit put down by a first-time buyer was 10 per cent. Last year, it was 20 per cent. In London, where the average asking price is £510,000, this is equal to £102,000.

Posted by drewster @ 09:16 AM (2613 views)
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12 thoughts on “Another banking crisis

  • ‘unassisted buyers have collapsed’ so therefore the bank of mum and dad will loose their deposits when prices really start to fall.

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  • mark wadsworth says:

    heheh, plenty of the comments are along the lines of “Hey, it was Mum & Dad who drove up house prices anyway, now the whole thing has come back to bite you in the ar5e”.

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  • Mum & Dad are busy paying the university fees……..

    More extraction of wealth by UK government.

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  • righttoleech says:

    Average London asking price of £510,000 is not 1st time buyer price. Usual manipulation of figures for effevt.

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  • “A crisis being made worse by banks demanding massive deposits”

    Hmm, lets think about this:

    10% of £165,000 = £16,500
    10% of £100,000 = £10,000

    I think I have found a solution! Lower house prices = lower deposit required.

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  • i can tell you businesses are slowing down rapidly over the past month, ours and others we deal with are all slowing , it feels like the public are running out of money

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  • The whole thing about deposits needing to come down really annoys me and not just because I’ve spent ages building one up.

    The 15% threshold wasn’t magicked up by the banks, it’s to do with Basel III. By the end of the decade, the capital requirements on debt will make the cost of funding any part of a mortgage beyond the 85% LTV threshold twice as expensive as the rest of it. The reluctance to lend beyond 85% LTV (except at punitive interest rates) is simply the result of banks pricing in those anticipated changes from those widely-discussed international banking laws that are gradually being rolled out.

    Every financial journalist should know this, even if they work for the Mail. They can call on banks to lend more but they can’t complain about the deposits being demanded. It’s not just reckless to give out 95% mortgages, it’s actively discouraged by the new regulations.

    The interest rate reductions at 80%, 75%, 70% and 60% LTV are similarly to do with how much house prices can feasibly drop without the LTV rising above 85% when the borrower comes to remortgage.

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  • There was nothing wrong with 10% deposit and max 3 x 1st salary + 1 x 2nd salary to my mind. So for a couple, 4 x 25K = 100K mortgage = £111K average house price. Them was the days!

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  • There continues to be a glut of un-sold houses in Devon, many of which haven’t sold for four or five years in many cases. There has been no movement in prices either.

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  • @8 Given how low interest rates have gotten since those rules-of-thumb came about, they hardly seem relevant, even if the base rate were to go back to 5-6%.

    I don’t really object to being allowed to borrow 5x joint salary or having to raise a 15% deposit. What I object to is that doing all that still only leaves me with enough for a starter flat.

    The idea that buying one of those starter flats will garner me enough appreciation by the time I’m 40 that I’ll be able to afford something a family could reasonably live in seems like an incredibly risky bet.

    They don’t really need to change much in mortgage regulations for FTBs. Banning IO and self-cert would have been useful, but the banks have stopped them for the time being anyways. The only rule changes we need are to stop BTLs having advantages over FTB.

    The prices need to go down or incomes need to go up. It’s as simple as that.

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  • reticent – you SHOULD object to being able to borrow 5x joint salary though… it was only credit availability which caused the HP rises that lead to you only being able to buy a starter flat. If those rules hadn’t changed it would all be different.

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  • @11

    Sure, credit availability caused the problem, but caps on income multiples are not necessarily the most efficient way to address it. They’re like rent controls, they just create excess demand that the market can’t meet.

    At 5% interest, 5x our joint salary for 25 years would leave our repayments at 46% of our net income. Interest rates are more like 4% (42% of our net income). That’s not that unreasonable considering 5x joint salary is considered the limits of affordability.

    The income multiples are not the problem. They are just a function of available interest rates, which are indeed too low.

    Self-cert and IO were what made credit too easily available. Even lower interest rates are what have kept zombie households able to access credit.

    In any case, until the zombie households are allowed to go to the wall and the market clears, the equilibrium price will not determined by the income multiples. Sellers are able to hold out until they get whatever it is they feel they need to move on. If the bank were to only offer me 4 times joint income, prices would barely dip, near me at least. The market would simply stagnate further and become even more reliant upon foreign money.

    In London, the prices have lost most of their correlation with mortgage availability and incomes. The only people who can trade up are those with tons of equity. All the new money comes from abroad.

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