New 5% mortgages - is this a major flaw in the plan?

[TedMullins]

I’m musing over the new 5% LTV deals that are going to be announced in the budget. I’m aware the small print of these mortgages hasn’t been released yet and won’t be until they’re available in April, but it struck me that unless the amount you can borrow based on salary vastly increases, these won’t make much difference to most people?

For example. Let’s say someone earns 20k and has 10k in savings. If you can borrow 4.5x salary, the bank would give them 90k. Add their 10k, and they can afford a property worth 100k. If said person only has 5k savings, will the bank lend them the extra 5k to cover the shortfall? This would be more than the standard 4.5x salary.

Going back to the 10k - thats 5% of 200k, so some people with around that amount saved may be thinking great, my budget has increased to 200k and I can get a better property. But if they earn 20k and can still only borrow 4.5x salary, they’re still not going to be able to afford it surely?

I’m thinking that either a) the amount you can borrow will be increased quite substantially to 5 or 6x salary which seems like a big risk in the current economy, or, more likely b) the only people who will actually benefit from this are those who are already decent or high earners, or live somewhere where property is extremely cheap. What do you think?

I do wonder if they have something else up their sleeves to keep the market afloat? I can’t imagine they’d back so many loans then purposefully let them fall into negative equity.

They shouldn’t have propped the market in 2008. I know why they do it, negative equity and repossessions would be absolutely terrible. But we can’t keep on like this

@EvilPea

They shouldn’t have propped the market in 2008. I know why they do it, negative equity and repossessions would be absolutely terrible. But we can’t keep on like this

It’s called kicking the can down the road until the next election, where hopefully it will be someone else’s problem. The government needs people to spend, spend, spend and they won’t do that if they’re in negative equity and the economy is dependent on HPI.

52% of the voting demographic approved of the budget. The voting majority is the older generation who are owner occupiers who like to see the ever increasing value of paper wealth.

Inflation will be the reckoning however as its coming globally in the aftermath of the economic impact of so much stimulus. House prices have no where else to go however as they are still linked to earnings.

The longer the bubble is inflated, the greater the implosion and the longer it will take the younger generation to pick up the pieces to recover.