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Original poster

FSA ban on mortgages of more than 3 times salary

234 replies

fishnet · 17/03/2009 16:17

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?!

OP posts:

ForeverOptimistic · 17/03/2009 17:53

Thanks fishnet.

Owls · 17/03/2009 17:54

Has this story just come out? Is there a link please?

Original poster

fishnet · 17/03/2009 17:57

Sunday telegraph broke it on Sunday and have done a few follow up articles. There is to be an FSA announcement this week. Will try to find a link.

OP posts:

duckyfuzz · 17/03/2009 17:59

article here

Original poster

fishnet · 17/03/2009 18:01

www.telegraph.co.uk/finance/personalfinance/5002083/Proposed-cap-on-mortgage-lending-by-FSA-is-suici dal-say-property-experts.html

OP posts:

Owls · 17/03/2009 18:07

Thank you Fishnet and Ducky, will have a read.

Owls · 17/03/2009 18:21

Well be interesting to see what happens but I really can't see the 3x limit being enforced. Like Op says affordability is about more than salary multiples.

No more 100% mortgages ever again though that has to be a definite and a good one.

sarah293 · 17/03/2009 18:23

This reply has been deleted

Message withdrawn

noddyholder · 17/03/2009 18:25

I agree its not all about multiples but this will have a stabilising effect on prices which is much needed.If you can only borrow a certain amount that is it.

brettgirl2 · 17/03/2009 18:49

I think borrowing 3x joint salary is scary. We want to move in a year or so and my DH blanches at the thought of borrowing 2.5 times. He starts looking all twitchy, hyperventilating and saying 'what if rates go up??'.

This ridiculous housing bubble was made by the banks, under appalling lack of regulation by the FSA. It seems rather unfair to me that the first time buyers of the past few years are the ones who are made to suffer.

thumbwitch · 17/03/2009 18:54

I think the Estate Agents ought to bear some of the blame though - obviously if you get paid a percentage commission it is in your interests to put the price up as much as you can to get as much commission as you can.

I firmly believe that EAs should get paid a fixed fee for selling houses, in bands according to different house prices (a bit like Council tax is), but not percentage. Then they have much less incentive to boost the market prices to the ridiculous levels they did.

brettgirl2 · 17/03/2009 19:02

The estate agents couldn't have done anything if the finance was not available to people.

noddyholder · 17/03/2009 19:03

It was the banks not the agents.they were enjoying the benefits as was I but not their fault

ElfOnTheTopShelf · 17/03/2009 19:05

I'm sure when DH and I first got on the housing market in 2002 it was 3x the main salary and 1.5 the second salary.

I think it was the middle/end of 2007 Abbey were offering 5 x joint income.

In terms of todays wages, the old calculation would have given us approx 120k borrowing, and the new calculation was 265k which was just crazy!!

morningpaper · 17/03/2009 19:07

Yes when I bought in 1993 we could buy 3x my husband's salary (which was 13k) or 2.5 joint salary (ermmm which was the same as I was a student)!

We bought a new build 2 bed house for 38k

Similar houses in the road behind were sold last year for around 175k

Anyone can see that is all fecked up - someone is making a BIG SILLY PROFIT there!

ABetaDad · 17/03/2009 19:08

I recently did some econometric analysis of historic full time male average wages and house prices from 1930 - 2008.

This showed the average ratio of house prices to male full time wages was about 3.5 over that 78 year period. By 2007 the average ratio of male wages to house prices was well over 6.

Historically house prices typically fell back to around 3 x male full time salary at the bottom of each slump.

That shows just how completely out of line house prices got in the last 5 - 10 years. It has nearly bankrupted the UK.

A proposal of limiting mortgages to 3x salary with a sensible deposit would only bring the market back where it has been sensibly for over the last 78 years.

It would certainly cause house prices to fall quickly back to normal levels if it were brought in but I honestly cannot see it happening for poliical reasons.

Do remember also that young couples would still be able to borrow 3 x joint to get on the ladder.

morningpaper · 17/03/2009 19:11

hmm that is very interesting

edam · 17/03/2009 19:12

Same here - when dh and I bought our first flat, it was 2.5x joint income or 3x higher earner + 1x the lower earner.

Just done a quick calculation and think our mortgage is current 2x joint (gross) income. BUT that's because I am very risk averse and never borrowed anything like the sums on offer. Hence we live in a very modest house compared to most of our friends.

Very glad I was so reluctant to keep up with everyone else now...

ElfOnTheTopShelf · 17/03/2009 19:13

"No more 100% mortgages ever again though that has to be a definite and a good one."

Not everybody who had a 100% mortgage was stretched beyond their means / have lost their homes / have defaulted.
We had a 99% mortgage when we first moved in, with solicitor fees paid for by the mortgage company as well, which was a huge help when we moved in.

We never had any issues with our mortgage, our financial mistake was taking a secured loan out which minimises who will touch us - moving to a different mortgage company means the loan lenders become first charge on the property which nobody wants to do in the current climate, and NR withdrew its remortgage facility and were only offering mortgages to new customers.

LadyGlencoraPalliser · 17/03/2009 19:15

Reading this thread makes me feel so OLD. There are clearly posters on here who are too young to remember the boom and crash of the late 80s/early 90s.
The market was due for a great big correction and it is getting one. It will be painful for a lot of people who bought within the last couple of years, but in the long run it has to be good news. And 3x salary is very sensible imo.

brettgirl2 · 17/03/2009 19:17

Surely though Elf it is reasonable to expect that someone taking on a mortgage is able to save a few thousand first?

ElfOnTheTopShelf · 17/03/2009 19:19

We were saving when we were looking. But the market was going up so fast that the goalpost kept moving!

brettgirl2 · 17/03/2009 19:20

'In the long run it has to be good news'

Well no, because more people in negative equity will lead to more people having to pay SVR and higher mortgages. Therefore there will be even more repossessions when the banks are already in real trouble.

The late 80s was an inflationary boom and subsequent recession, not a financial crisis.

noddyholder · 17/03/2009 19:21

So many people took out loans on top of huge mortgages and credit cards.What was all this money spent on?I would genuinely like to know!

brettgirl2 · 17/03/2009 19:21

Yes, that was the problem Elf. It's unlikely to be again for the next few years though!

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