FSA ban on mortgages of more than 3 times salary

[fishnet]

So if the FSA ban mortgages for more than 3 times salary how exactly will that work. Presumably the market will just go into freefall since basically if you earn less than £40k you'll be priced out of the market.

I cannot see how this can go through!

What happens to people who have higher multiples and want to remortgage? they'll be stuck with standard variable rates praying that their bank doesn't pull the mortgage on them (as seems to have been happening quite a lot).

Its bizarre. Surely affordability is about more than salary multiples?!

brett - this is like my experience, as said above I was actually in the bank this weekv & speaking to the branch mortgage advisor who offered me nearly 6x my salary.

I have a £20k deposit. In her words 'that won't affect the amount you can borrow, but you won't gewt the best choice of rates'

clearly any guidelines over 3x salary havent filtered thru to them yet, which is lucky for me as i need to borrow more than that!

I think there's one key point here that's worth mentioning.

In any loan transaction, there are two sides making a decision.

1. Should the lender lend? The lender should lend any amount of money providing his risk is covered by a sufficiently large deposit. So if the house has to be repossessed, the lender's loan capital is safe.

1. Should the borrower borrow? The borrower should judge for himself how much he can afford to borrow, within his own safety and spending parameters.

So if you feel happy to borrow large amounts, perhaps because you want/need to, and your income stream is safe (or you are not risk averse and are prepared to face losing your house if you can't repay the loan) that is your decision as a borrower.

The reason why we need more regulation though is because people have become silly with their borrowing. It's become culturally acceptable to be in hock up to ones eyeballs.

This is a really interesting thread, I am 36 and my DH 32 and we have never been able to buy our own home even though we both work. We both earn under average incomes, about £18,000 each. A couple of years ago we were earning about £28,000 together and tried to get a mortgage. We could get one with a mortgage company but the repayments were ridiculous and if they had gone up we would have never been able to afford them. So we continue to rent. I would love to own my own home - not for an investment but to have a home that our dds can grow up in and come back to when they are older. And we don't want some big fecking house with a huge garden and 3/4 bedrooms. No, a small 2 bed semi will do fine but around here that is still around £170,000 at best. If house prices drop further, that is good for people like us.

But why has it become cultuarally acceptable? Because millions and millions of pounds was spent by finance companies to make silly borrowing the cultural norm. To promote the idea that you can have it all.

The suckers

quattrocento, your thread sort of suggests its unsecured credit which needs regulating, not mortgages? i am all for that. we borrowed 4x multiple in order to live in a nice house in a nice area. we know that if things go tits up, we will swallow our pride, sell up (if we can, granted now not so easy) and move to something cheaper. but I have never, never had any other sort of debt. I have a credit card (for work expenses, paid off immediately) which keeps on sending me letters upping my borrowing limit. I am now on 27k, ludricous really, given it only took me 10n mins online to apply. its things like this that get people into dire straits

I am not surprised it was Lloyds who offered you a ridiculous amount, brettgirl.

We took out a mortgage with them two months before DD was born. We had been completely clear with them that we only wanted to borrow based on DH's salary because I was going to stop work for up to five years, and they still tried to talk us into including my salary. We had to be quite blunt and say look, you can see I am not fat, I am PREGNANT and will not be working again for years so NO THANKS.

Another bank offered us 10x DH's gross salary. I can remember thinking at the time, this is fucking insane and the wheels are going to come off any minute now.

Three years ago we took out a 115% mortgage to buy this house, and that 115% was still less than 3x our joint salary.

Thanks to two children in less than two years, it's unlikely that I'll be going back to work after my maternity leave ends in August and I am crapping myself about how things are working out......and wishing I hadn't clicked on this thread now as ignorance is bliss!!

fortunately this is a big house, and we bought it with a view to staying here for a very long time (like forever!!), so I suppose we are fine as long as we can afford the repayments. We bought when interest rates were about 6.5% and we would really struggle if they went up any more than that. We'd also be stuffed if prices round here drop by too much more as we wouldn't be able to repay the loan if we were forced to sell.

I could always go back to work, but my salary would be eaten up with childcare costs, and as a construction industry professional...well there just aren't that many jobs out there at the minute.

I mostly get through the day by trying not to think about it!

I don't know if it's culturally acceptable.

Someone further down questioned the logic of interest only mortgages. What people did in the early/mid 90s, was buy on interest only because the property prices were going up so quickly, that they could live somewhere for 1-3 years, pay very little (i.e. only the interest), then sell and STILL make a fairly large profit.

But people couldn't predict when the downturn would come about and with one of the factors being a shortage of property (always driving demand), I think people thought that even if there was a downturn, the shortage of available houses would mean the house prices wouldn't get hit straight away anyway.

I don't think people thought a recession would hit that quickly AND although there are a lot of sensible people about, I do think an awful lot of people used to 'trust' banks so when they were offered ridiculous amounts, took it with both hands.

I think that the system of giving you more credit because a company like Experian say you have lots of it - therefore you're a safe bet will have to stop. When I went for a mortgage in 2000 I was on £40,000+ and had no loans, a fully paid up credit card each month and no student loan and found it almost impossible to get a good rate mortgage -because I wasn't in debt - 3 high street lenders turned me down Why? Because I had no debt - yet I had a 20% deposit and only wanted 2.5 times my salary Never had that problem when buying places in 89 and 92!

Will it go back to a firm 3x - nah, I doubt it but I don't think many will sticks their necks out to much more in a volatile market. Plus, they're going to need more hard facts about real money coming in rather than rely on credit rating companies who say just because you can pay your debts now you'll be able to manage in the future.