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To think the amount available to borrow for a home is going to be slashed?
163

SwanBuster · 05/08/2022 17:18

At a fixed rate of 1.5% for five years, a 250k mortgage offer would mean paying back £1000 per month.

Let’s say that’s what a given family might be able to afford as monthly repayments. These were readily available until recently.

It looks like fixed rates are going up fast … if they hit 5% then for the same ‘affordable’ £1000 p/m payment would mean they can borrow a maximum of £171k.

And if affordability drops further because of other expenses (let’s say they can now only afford 900 p/m because of rises in other bills), then that drops even further to about 155k.

what do you think the impact will be? AIBU to think this is going to hit the housing market quite hard?

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Am I being unreasonable?

AIBU

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SwanBuster · 05/08/2022 17:27

If not, please do explain your reasoning. The marginal buyer - be it a first time buyer or investor is surely about to have the amount they can borrow reduced substantially ….

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Whadda · 05/08/2022 17:33

You’re correct, OP. People will be able to borrow less as interest rates will be higher, and their own affordability to services loans (inc. mortgages) will reduce.

On top of that, you’re likely to see job losses as business struggle to stay afloat. Job losses really are the biggest visible recessionary impact.

So fewer people working, higher costs, and lots of people who have bought recently on high LTVs suddenly finding themselves in negative equity.

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OperaStation · 05/08/2022 17:36

I think you’re right. The housing market needs to be corrected though. The house prices in the past 12 months have been insane. People have paid vastly more than the houses are worth and it’s not sustainable.

Those people that paid over the odds in the last year have likely paid at the very limits of what they could afford so I would anticipate a lot of people having to sell up or be repossessed.

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giffyg · 05/08/2022 17:40

yes low interest rates have increased prices.

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giffyg · 05/08/2022 17:42

but any drops will take time to filter through as people come off fixed rates which majority are on. Tbh I can't see huge drops (there should be) just stagnation.

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DelurkingAJ · 05/08/2022 17:43

Anyone who has mortgaged or remortgaged recently will have been stress tested on rates going up significantly. I think for us it was at least 5% up from memory. If they continue to stress that hard then yes, it will affect affordability.

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giffyg · 05/08/2022 17:45

they have dropped the stress test

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SwanBuster · 05/08/2022 17:49

DelurkingAJ · 05/08/2022 17:43

Anyone who has mortgaged or remortgaged recently will have been stress tested on rates going up significantly. I think for us it was at least 5% up from memory. If they continue to stress that hard then yes, it will affect affordability.

True. I don’t have concerns for people who have already bought a home necessarily in terms of them being able to afford it unless they went bananas - Presumably they’ll cut their cloth accordingly.

no, my concern is more related to the ‘new’ entrants - first time buyers or investors. They effectively ‘set’ the price for the entire market as what they pay for a house is largely down to how much they are allowed to borrow….

so yeah, that kinda affects everyone because every house price is impacted by that, but if you aren’t selling that’s not a problem.

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Timeforabiscuit · 05/08/2022 17:53

The correction will have to come to price reduction, so smaller starter homes will have to get a hell of alot cheaper, and then it will be musical chairs for everyone else on the market.

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SwanBuster · 05/08/2022 17:55

OperaStation · 05/08/2022 17:36

I think you’re right. The housing market needs to be corrected though. The house prices in the past 12 months have been insane. People have paid vastly more than the houses are worth and it’s not sustainable.

Those people that paid over the odds in the last year have likely paid at the very limits of what they could afford so I would anticipate a lot of people having to sell up or be repossessed.

i agree. I don’t want to see repos - well, not for owner occupiers - landlords yes if they borrowed too much as that’s part of the risk they took to go into this business.

but absolutely - the market hasn’t been inflated by cheap money for a long, long time and it hasn’t really served any societal good.

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SwanBuster · 05/08/2022 17:55

Sorry - the market has been inflated by cheap money.

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LionessesRules · 05/08/2022 17:56

But new buyers aren't going to be stress tested.
So over the past few years, you had to be assessed as affording a mortgage at 3% higher than current products (or similar, I'm not clear on the details). That has been dropped, so in theory you can borrow more right now, as interest rates haven't, yet, risen 3%.

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giffyg · 05/08/2022 17:56

FTBs won't be able to build up as much equity (tbh this was happening already because the bottom rung is so high & age of FTBs) which in turn will limit what they can afford for next property

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FlakeSnow · 05/08/2022 17:58

No, they have dropped 1 of the 2 affordability tests.

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SwanBuster · 05/08/2022 17:59

LionessesRules · 05/08/2022 17:56

But new buyers aren't going to be stress tested.
So over the past few years, you had to be assessed as affording a mortgage at 3% higher than current products (or similar, I'm not clear on the details). That has been dropped, so in theory you can borrow more right now, as interest rates haven't, yet, risen 3%.

the stress test being dropped is largely immaterial. The real rates for mortgage lending on fixed 5 year mortgages has already hit 4% from many lenders, and looks likely to go up further.

That in itself will impact affordability as lenders still have rules on how much can be borrowed in terms of earning multiples, and they have an interest in it not ending up in a repo, so I would presume they’ll likely restrict lending anyway, potentially be reducing those multiples.

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likeminded · 05/08/2022 17:59

This is a good thing. House prices need to come down and the Government need to stop encouraging people to get into huge amounts of debt so that boomer house prices can remain propped up. Before the housing bubble, people could only borrow 3 times income and society was much more stable and people had money to spend elsewhere and society was much more balanced because housing did not suck up so much of peoples income. The only people that benefit from high house prices are boomers, landlords and bankers. The rest of society suffers.

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giffyg · 05/08/2022 18:02

There was a theory that in 10 yrs or so there would be a glut of larger family homes on the market (boomer generation dying) which would suppress prices. Combined with higher interest rates who knows.

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SwanBuster · 05/08/2022 18:02

likeminded · 05/08/2022 17:59

This is a good thing. House prices need to come down and the Government need to stop encouraging people to get into huge amounts of debt so that boomer house prices can remain propped up. Before the housing bubble, people could only borrow 3 times income and society was much more stable and people had money to spend elsewhere and society was much more balanced because housing did not suck up so much of peoples income. The only people that benefit from high house prices are boomers, landlords and bankers. The rest of society suffers.

👍 I agree. The speed it’s likely to happen, and based on the figures in my OP it could be faster than any of us expect is going to be the part that I am concerned about.

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FlakeSnow · 05/08/2022 18:05

The existing Loan to Income test still remains, plus wider affordability tests on the underwriting side. One test has been dropped as it was not likely that it would be failed if the others were passed.

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Nw22 · 05/08/2022 18:07

@likeminded but houses prices going down now woudl hurt younger people who have recently bought more than boomers

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Damnautocorrect · 05/08/2022 18:07

giffyg · 05/08/2022 18:02

There was a theory that in 10 yrs or so there would be a glut of larger family homes on the market (boomer generation dying) which would suppress prices. Combined with higher interest rates who knows.

Care homes & equity release will eat a good chunk of those up.
not all, but a good chunk

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giffyg · 05/08/2022 18:08

@likeminded I absolutely agree with you however the madness has meant our economy is so entwined with ever rising prices (makes people feel rich & spend, encourages renovations etc) & so many rely on homes to provide money eg retirement, helping dc, paying for care, equity release is growing that it would be a huge adjustment

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Whippetquick · 05/08/2022 18:09

Probably spund like a broken record but I've just lost my buyers because of this, lender put rate up.so they can no longer afford mortgage. I've an onward purchase I will no doubt lose as well now

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giffyg · 05/08/2022 18:10

but houses prices going down now woudl hurt younger people who have recently bought more than boomers

it depends, it's often easier to move up the ladder in a falling market as opposed to a rising one.

I do think young people have been shafted though.
wage stagnation
lower pensions
higher education costs
and now high taxes, high cost of living & high house prices.

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Scepticalwotsits · 05/08/2022 18:10

I don’t foresee the market dropping massively, as interest rates bite some will lose property, but a lot will be phased due to fixed rate deals so it’s not all at once it hits. The problem is there still isn’t enough supply, so while the market will slow I don’t think it will drop because people will just sit on their property. It’s only if we see large numbers of redundancies at companies where there are a lot of homeowners that we will start to see a change in the market.

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