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?!

More people will benefit than lose though.Those who go onto the variable rate should have factored that in to their calculations when they borrowed.The rest of us can't pay for that.Introductory discounts are just that They aren't forever but most people mortgaged to their max affordibilty at the lower rate and a normal % floors them

Brettgirl, in the long run a major correction in the overinflated value of property has to be good news for people on average wages who cannot now afford to own a house. Or a flat. Or a studio even.

the money was all spent on tat,cars, massive tv's....

noddy - honestly?
we had some bills from our wedding, but took a loan out when DH got into some stupid financial trouble. He had stupidly started gambling, and could not afford to pay back the debt by himself (c/card).
We took the loan out because that plus the mortgage was still well within the value of the house, and the loan could be transferred when we moved. The interest rate of the loan was more favourable than the interst rate of the cards.

brettgirl, negative equity isn't really a problem in itself - only if you want to move

It's time we stopped seeing houses as INVESTMENTS and saw them as HOMES again

I agree it makes me feel ANCIENT that I've lived through the last housing 'bust' ...

Gosh elf thats tough.Are you planning to move?A lot of people will be staying put if this comes in.We will all fall in love with our homes again hopefully.

We bought our first home 3 years ago and were offered silly multiples - over 8x as I'm a professional - we turned it down and got a reasonable house for 5x, 95%. It was the only way to get on a market that was crazy. We have now had to move area but able to rent out our old house and rent in the new area, and will just have to hold tight. We wish we were 10-20yrs older and be in the generation that have made a fortune, but its not possible - don't wish for a major crash, we worked hard, tried to make the best decisions and ignore advice from mortgage lenders/agents that appeared irresponsible at the time, and with hindsight mad. I just hope things slow, and become more affordable for first timers, and that me and my generation do not get shafted I don't wish it on anyone!

We bought our first home 3 years ago and were offered silly multiples - over 8x as I'm a professional - we turned it down and got a reasonable house for 5x, 95%. It was the only way to get on a market that was crazy. We have now had to move area but able to rent out our old house and rent in the new area, and will just have to hold tight. We wish we were 10-20yrs older and be in the generation that have made a fortune, but its not possible - don't wish for a major crash, we worked hard, tried to make the best decisions and ignore advice from mortgage lenders/agents that appeared irresponsible at the time, and with hindsight mad. I just hope things slow, and become more affordable for first timers, and that me and my generation do not get shafted I don't wish it on anyone!

doh! sorry about double post! I'm just glad I have no other debts and ignored the 'tat' purchases on credit cards etc far too many people bought

Negative equity is a problem because it puts your mortgage payments up. In the amounts that could result here it would prevent lots of young people ever being able to move.

I completely agree:

1. That it is a good thing for people to be able to afford houses, but in getting there it would be better to avoid bankrupting the UK, which would be a strong possibility of the property market crashing back to say 2000 levels.

1. That it is a home not an investment. I think one of the issues is that people see the way to move up the property ladder as collecting equity as prices rise. In fact you could also pay the mortgage off as an alternative way of doing this.

1. I have no sympathy at all for people who remortgaged to buy fast cars.

It is easy to get into a 'this doesn't affect me' mentality however when there are a lot of people who I think have been really wronged by the lack of regulation we have seen. FWIW it doesn't matter a jot to me personally what house prices are.

It has been tough. its all affordable and we'll pay back every penny of our loan and mortgage.

DH was bloody stupid. He knows it. Everytime anything crops up to do with the loan / money / mortgage you can see him slump as he knows its his fault we have that loan.

We had planned to move, we wanted to move closer to my parents as it would be much handier for when DD goes to school, espeically as my mum has just retired at 50. She was happy to take DD to and from school, and would look after a 2nd child if we had one, but I wouldn't expect her to battle through rush hour traffic to get to us.

While we'd planned to move, we planned to keep our mortgage at a similar level - our house was being valued at 100k, we owed 70k on the mortgage, and planned to only go to about 80k (still some affordable houses near my parents at that value). But nobody wanted to buy ours, so we're stuck where we are. We had an issue a while back as NR changed their offers and would have left us on variable at the end of our fixed rate, which was then 7.5% which was affordable, just not nice to pay if we could have fixed elsewhere. But with the way the loans work, we couldn't fix anywhere else. Luckily, we came off our fixed rate just as the interest rate dropped, so we're actually playing LESS than we were when we were fixed!

We'll move at some point in the future. If we have another child they'll share with DD. We'll continue to use the childminder (who is lovely) for school runs. Its not what we planned, but c'est la vie

"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." But that is surely reflecting more women working and their salary being taken into account?

We only borrowed 2.5 x joint salary. Was horrified when I saw what they would lend us. How many people really have borrowed huge multiples of salaries? Is this really, really common?

I'm fascinated by this. To a large extent banks have already reined in the income multiples and are asking for bigger deposits. So I wonder if (if it really happens) the effect will be more on sellers' mentality: to force them to realise that 'holding out' for a better price for a few years is not such a great idea after all, unless they want to hold out for more than 10 years. Either way a very fast drop in prices seems quite possible as a result.

I am astounded that Gordon is apparently very supportive of this idea as it would make him even less popular than he currently is. But in some ways it is genius - a year of cliff-drop price falls would be ultimately much less damaging than 5-6 years of slow ones and a barely moving market. But he has to call an election in 2010, so I really don't geddit...

Unless of course this is going to be yet another of this government's ideas that sounds extraordinarily bold when you first hear of it, and then when you look at the details you realise it's meaningless (e.g. no more than 3x salary unless you are between 3 and 9 feet tall, or there's an r in the month). Remember the pledge that banks simply 'must' return to 2007 levels of lending in order to get bailed out? An amazing promise, except for the tiny point that it isn't going to happen after all.

I hope it does, though.

Tinker - I am afraid to say it is all too common.

It will cause a huge amount of unhapiness in the next few years. It wil be especially bad if we get job losses and wage deflation in the economy.

another big problem that I see among my friends and colleagues is the interest only mortgage, plus no compulsary repayment vehichle. It always was the case until recently that you had to prove to your lender you were paying into some sort of savings plan to pay your mortgage off and then that stopped. people could then borrow more on interest only and just banked on house price rise alone to pay the mortgage at end of 25 years. I know so many people that just have interest only mortages and may well be buggered in 20 years time when they still owe £350k for their 3 bed semi. I really think this is a big prob, just waiting to explode. People intend to go on to repayment after a year or two, then can't afford to do so so put it off.

I think the truth is that the banks can do what they like.

Doesn't matter whether the FSA legislate or not at the moment.

When people come off any deal they are on, if the bank thinks you are high risk, they can just refuse to re-offer you a mortgage deal or price it so unattractively that you won't want to.

Then you'll be stuck trying to remortgage and getting the house revalued (when its value may have dropped).

We had this with dh's credit card. They decided his profession was 'high risk' and cut his limit from 5 figures to £500 overnight. They told us if we didn't like it, we could close the account!

Yes, and of course Jimmy brings in the cynical, political side of economics which must never be forgotten.

Interest only was massively popular a couple of years ago.
We looked at mortages a couple of years ago, and looked at Halifax, who told us about interest only mortgages, so for the first year you only paid interest. BUT the mortgage payments didn't start automatically after that year, it was up to the lendee to change it, and the lendor didn't chase to make you change it.
The halifax man said to us "well, if you didn't swtich during the terms of the mortgage, then at the end of the years, you'd still have x amt owing to us" I was a bit about how odd that seemed! (the bit about no forced switch to repayments as opposed to interest)

I know ppl with interest only mortgages

It's AWFUL, it really shouldn't be allowed

It is dooming them to poverty in retirement

To me it beggars belief that people would have interest only and not put a plan into place to repay the capital

Why not just rent? It comes to the same thing and has a lot less problems.

EXCATLY

renting is SO much more preferable - you don't have to have another 5k of debt if the boiler explodes!

There is an argument morning paper that says it is their responsibility to make sure that they can repay the capital. They are dooming themselves in this case to poverty in retirement IMO.

but anyone sold an interest only mortgage must be too thick to realise

I also feel ancient in that I lived through the last housing bust. Only this time we're not looking at interest rates into double figures. Can you imagine that? So many people aren't able to afford repayments above about 6% let alone 10 and over.

Sadly these things happen for a reason and the unprecidented rise in house prices over the last decade was definately not just down to wages going through the roof and lack of housing. Banks just lent silly multiples on average wages and it skewed the reality of who could really afford what. With all this money being lent out and houses being on the market for more than a week being as rare as hen's teeth - we were all percieved as rich but the reality is that it wasn't sustainable - at least not at the present.

The national average wage is still way, way off 3 even 4 times the average house price - so I just don't see how house prices can't fall so as to close the gap to a more realistic level - otherwise there will be no new buyers into the market. Better a drop now and a return to an active market than a more lasting and damaging stagnation for many years. Sympathies for anyone facing negative equity though - been there