Wednesday, October 8, 2014

Mortgage Crunch 2.0

First-time buyers and home movers hit by a mortgage crunch

MMR causes amount of credit available from banks to drop like a stone, Lenders also spooked by property price outlook, Credit card borrowing increases for the first time in nine months. Its Credit Conditions survey of lenders between June and September recorded the largest fall in the amount of credit they were able to supply since the end of 2008, when Lehman Brothers collapsed. The tightening in lending was largely due to banks' reduced risk appetite and concerns about the outlook for house prices, the Bank of England suggested. Yesterday, a report by the Centre for Economics and Business Research predicted that property values will fall next year.

Posted by khards @ 08:18 AM (4340 views)
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18 thoughts on “Mortgage Crunch 2.0

  • You can’t taper a ponzi – more govt support coming soon I would think.

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  • All government can do to support asking prices is encourage and enable more debt.
    Prices have hit a wall at current mortgage term, LTV and interest rates for prices to remain high or grow they need to increase a couple of these or start giving student loan style shared equity (aka council houses). The current help-to-buy policy is simply not enough to support prices.
    As prices continue to fall risk increases and mortgage SVR’s will increase. At that point I expect Carney to unleash another FFL or 30 year fixed’s.

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  • overleveraged markets play havoc when prices fall…btl portfolio crashes will be the catalyst

    that helped bring down several uk banks in 2008

    the answer?….cheaper credit more leverage more btl!

    banks have been lending into biggest bubble in uk history so expect chaos

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  • Tightening the mortgage criteria was a political trick. It meant that the government could cool the market without putting up interest rates coming up to an election. It also meant that it could still pay very low levels of interest on government debt. The amount of transactions going through versus the total population is miniscule so this manoeuvre wont impact on their election hopes. Mind you if I were the Tory party I wouldn’t want to win the next election. Labour kicked the can along the road to them and many of them may want to kick the can a bit further down the road and then come back 5 years later: Certainly if they have safe seats. I cant see the winning party doing well over the net five years.

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  • Mortgage availability WAS NOT tightened. The restriction of 15% of loans being more than 4.5x salary allows a DOUBLING of risky lending, since the figure at the time was about 7.5% at 4.5x and above. Indeed, that “restriction” was in-fact a green light for lenders to increase the amount of risky lending.

    In addition, we found MMR very easy to pass. It was a breeze. Frankly, the process takes out the dross from the market so that you aren’t viewing properties alongside folk who clearly couldn’t afford to out-bid you in any case.

    Where MMR has an effect is with re-mortgaging. Many folk are being kicked into Standard Variable Rate, though, for many, that means a variable rate similar to their recently expired fixed rate that they took out five years ago. With rates so low, likely to continue, they have ample time to sort out their finances. Some will end up being re-possessed, but not likely that many.

    In any-case, it is likely when the limits are reached, that the goal-posts will be shifted, since BOE will be scared of restrictions precipitating a further collapse in construction rates, mindful that that process would precipitate a need for further interest rate cuts, that would in anycase cause house prices to rise further. So you see, central banks are actually not in control of the market, they merely follow the market and posture as if they were Gods, but they are not. All they can control is syphoning cash off to their buddies, they cannot actually fully control the business cycle, because they are only minor players relative to the collective general public and global capital flows.

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  • What MMR did, was provide CONFIDENCE in the housing market, that will actually draw more people into it, since confidence and sentiment is more important in markets than anything else. MMR could actually have been a shot in the arm in the longer term.

    With housing, people are making risks that span 25yrs, and so if folk have confidence that the BOE has reduced long term risk in the market, they will plough in their savings as soon as they realise that MMR has not precipitated a crash.

    Indeed, as land registry data keeps showing a booming market, month after month, with 2.8% monthly growth in August, 3.2% in July in London, compounding the other indices, the renewed confidence in the market will turn into a panic to jump aboard and a stampede. Transaction numbers could end up exceeding the 2008 peak, particularly when it comes clear that the 4.5x salary quota looks close to being full, should unemployment numbers keep reducing.

    I know, because I got an offer agreed just 3 weeks after getting a full time job in London. I went to full time from temping SOLELY to qualify for a mortgage, because the £6,000 repayments each year, combined with capital growth exceed the benefits of earning a much higher rate of pay as a temp.

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  • The £1m savings protection is probably an attempt to counterbalance the confidence MMR has provided to homeowners with a reciprocal confidence measure to savers. The government is probably concerned about so many people liquidating their savings and bonds to buy mortgages and are seeking balance with this renewed savings protection measure.

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  • Streamingfreedom says:

    “In addition, we found MMR very easy to pass. It was a breeze. Frankly, the process takes out the dross from the market so that you aren’t viewing properties alongside folk who clearly couldn’t afford to out-bid you in any case.”

    The message some banks are giving at the minute is that they do a quick sit down to figure out affordability/what they would lend, you go away with this figure in mind, view and make your offer then come in for your proper MMR review after that. That’s what Natwest told us which was surprising as we thought well if the MMR says they can’t lend we’ve wasted everyone’s time.

    However Natwest seemed pretty confident that the MMR would be a breeze as long as what we were telling them at the first affordability stage was true. Basically seemed like the bank didn’t want to waste their time doing the work of the MMR upfront when they could let punters go out and waste seller’s time on the market instead.

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  • ”house prices to go to the moon”

    Not so sure – seeing lots of reductions in my area, lots coming onto the market.

    Mortgage criteria WAS tightened, but money is being thrown at those who quality just the same as it was 2007.

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  • I got an offer agreed just 3 weeks after getting a full time job in London. I went to full time from temping SOLELY to qualify for a mortgage, because the £6,000 repayments each year, combined with capital growth exceed the benefits of earning a much higher rate of pay as a temp.

    You can just as easily go back to being a temp – the rule of work is ”last one in, first one out” etc. You are taking on massive debt for a very long period of time – and buying at an all time high….and desperately hoping for steeper rises – your numerous posts here clearly indicate that. You are taking a lot of risk, for not much reward.

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  • libertas could be right about interest rates but the risk is high…when you are stretched everything has to go to plan…one hiccup and you are toast.

    relationship breakdown,loss of job,ill health all pose a risk to highly stretched mortgagees

    forced sale when in nequity means you don’t own a house AND you owe the bank money…..renting…good luck if you pass the checks!

    BUT if Libertas plan goes to plan then its a good move albeit a risky one

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  • I agree with Britishblue at (@4) above.

    People I know who are moving houses are being plagued by their mortgage companies asking all sorts of inane questions for what is sometimes a minor change in a mortgage agreement.

    I accept what taffee has to say (@10) about sailing close to the wind on borrowing. One slip and you’re gone 🙁

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  • I cant see the winning party doing well over the net five years

    There won’t be a winning party – the days of single party government are well and truly over.

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  • Hi Taffee. Prices would have to fall more than 30% for us to be in negative equity, and that figure increases each year because every year we pay down at least £6k on the loan. It would be risky had we gone for a 90% mortgage but we are on 70%. We could have purchased in a posher place and a larger house, but we made the decision to hedge our bets and err on the side of caution plus, keeping our re-payments low and, choosing a tracker rate with no early repayment charges so that we can fix at a moment’s notice. All I have to do is ring the broker, reserve a mortgage, and then go through the process. The rate would be fixed for three to six months, giving me ample time to go through the application. In the situation of relationship breakdown, loss of job, etc. we could just sell the house, most likely at a small profit.

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  • good luck with that……houseprices after this sort of bubble could fall 50%…try selling in such a market and be prepared to wait months or years unless you take a knock down price…that’s if you don’t get repossessed in the mean time(if your income dropped)

    your plan has risk…no doubt about that…hope all goes well

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  • Buying anything an all-time-high is usually never a good idea, whatever you are buying. Simples.

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  • Libertas (multiple posts) I run a removal company in the south west of London, so the changes that have come in have effected me directly as chains have been broken. You of course maybe totally right and maybe I have just become very bad at business overnight, but the rapidness of the slow down is starting to worry me.

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  • ” we could just sell the house”

    – sounds like a comment made by someone who has never actually needed to sell a house. Taffee’s right.

    Having said that, I too hope it works out for you. It’s wrong that simple family life is being messed around in this way.

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