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?!

There is v little competition in some areas for good houses.there hasn't been a house in our road for ages it is v popular for schools and slightly cheaper than the adjacent road.hopefully will help sell it

Agree with Libra - it's not only peeple who have overstretched themselves who will be harmed. Anyone who bought a their first house at the peak of the market, even if it cost x3 their income or less (like us) could stand to lose.

We bought the cheapest house we could get in the area at the end of 2006. It's a 2 bed terrace 'in need of modernisation' (to quote the estate agents!). We got a mortgage for about 2.5 times our joint income (although now I'm earning less as I'm part-time since having DD) and we paid a 10% deposit. If house prices go down so much, we will be in negative equity which means we may struggle to remortgage, and we'll certainly never be able to move

We just bought at the wrong time

The starting salary for teachers is definitely now over 20K.

I think that there are some strange figures on here about salaries in general. The average salary in the UK is now about 30K (although that refers to the mean and the median is probably slightly lower).

3x one + 1x second is not particularly logical in my opinion. Take a couple who earn 30 and 37k against a couple who earn 60 and 7k. At 2.5 times both couples could borrow 167,500 leading to repayments of around £95O per month. On desperate subsistence living the first couple if one lost their job could still make the repayments, in the case of the second couple if the main earner loses their job they are in serious trouble. On the first measure the 'safer' couple would be able to borrow less. There is the having children argument - but in which case the low salary is likely to go to zero, whereas the other woman could go back to work - with child care coming to the same thing.

Fishnet - you are right and we were talking about people who are seemingly not paying off the equity. If you have a plan and the discipline to stick to it then interest only can lead to more flexibility.

average salary

'The "average" salary is £24,000, but most people earn less. Most people have an "above average" number of feet.'

the average HOUSEHOLD income in my area is just under 30k

Thanks for that link UD - very useful.

Not according to this

www.get.hobsons.co.uk/news/Working/297

It depends how it is calculated and whether it includes casual type staff who are not 'salaried'.

Historically you really needed a 'good' and therefore probably 'salaried' job to get a mortgage.

And also as I pointed out there is a significant difference between mean and median.

This article shows the same figures and this time I'll make it a link

news.bbc.co.uk/1/hi/england/london/7802792.stm

Typical of this government. A day late and a dollar short.

I hope it does bring it in - after all will be about right for the nanny state we will in. As mp said, it's madness to borrow more than 3 times your salary anyway.
Haven't read the whole thread yet, but when we sorted our mortgage out a couple of years ago, the banks were using EVERYTHING to boost our income. Child benefit, tax credits etc. I told them to take it off our allowance, but they wouldn;t so we didn't get the full mortgage we were offered.

Imo,this is entirely wrong and should never have been allowed. This "income" is not boost your mortgage allowance but to help clothe and feed your children. (perhaps a whole new thread this...)

either way I've not come anywhere near to hitting the 'average salary' since I left London eight years ago

dammit!

me too Riven, most of my friends are on low twenties at most

It only makes the gap between earnings and SMP greater

Remember that the 'average' is skewed by a small number of people who earn very high amounts, so it is true to say that most people earn less.

but that's cos it's still an "average, isn't it? all those immensely highly-paid city workers must skew the average dreadfully.

We have an interest only mortgage. Its not that we were too thick to realise what we getting ourselves into.

We were stupid to decide that we could have a baby and afford a mortgage. Once we had ds we had to switch to interest only because we couldn't afford the repayment mortgage. Ironically if we had stayed on a variable rate we would be in a position where we could switch back to repayment. Stupidly when the financial markets started going tits up I got scared and stuck us on a fixed rate which we are tied into for the next couple of years.

In 1980 my first boyfriend (who ok was a bit older than me!) bought his first house on a max 2.5 times his income, had to provide letters about his salary and job security from his employer, had to have been saving with the building society for a minimum of I think it was 2 years, and had to provide a 10% deposit.

I also remember the last boom and bust housing market. I bought my house for 2.5 x my salary (which was the max permitted I was single) in 1990 and when I made my first payment the interest rate was

12.5%

To those of you overstretched or with interest only mortgages, what on earth will you do if interest rates go up to even half that?

I have been shocked the last couple of years that interest only 100% mortgages seem so, well normal. I am so naieve that it never occured to me that a bank would ever lend more than it had in assets (ie savings etc). Any other type of business doing this would be declared trading insolvent, would be wound up and the directors who knowingly did it would be struck off!

If less multiples lending leads to a readjustment in the market to affordable houses then I'm all for it.

Our house values may go down, people may have negative equity (plenty did in the last bust and lived to tell the tale) but if you look on your house as an investment, then you have to remember that the value of investments can go down as well as up.

I agree Flipperty: interest rates fluctuate, I suppose if you are old then you recall when interest rates were in their teens and expect that to happen again at some point

If you can only afford the interest on your mortgage then you can't afford the mortgage. The awful thing is that if house prices declnie by 50%, which they might do, someone with a £200k 100% mortgage will then owe the bank £100k PLUS their house, putting themselves into poverty for life. Awfully sad (and a bit mad).

...and five years ago we took out a 6% fixed-rate and were chortling at what an amazing deal it was because everyone thought interest rates were at an all-time low....

Yes, I'm completely with the affordability bit BUT with the UK on the verge of bankrupcy it does definitely need some careful thought.

In terms of interest rates in their teens, the reason for this was higher inflation. Inflation actually erodes the amount of capital that you owe on your mortgage, so in fact in the long run you don't necessarily end up worse off. The 15% interest rates were to do with propping the pound up at an overinflated level in the ERM.

I wonder if a bit of inflation might actually be quite a good thing for our economy right now... Perhaps it would actually solve the affordability a bit more 'gently' and reduce the value of potential negative equity .

Yes I remember when interest rates were in their teens which is why I got scared and stuck us on a fixed rate for 3 years. Last year it seemed that the even the so called experts didn't know whether the government would raise or lower rates. I figured that it would be sensible to give us security for the next few years, I was wrong. However I didn't really feel I had much choice if rates had risen we would not have been able to afford the repayments, simple as that.

It may seem daft to be on an interest only mortgage but as my name suggests I am forever optimistic and hoping that once our children are older and childcare is not such an issue that I can earn a decent salary and enable us to switch over to a repayment mortgage.

Six years ago when we bought our house we should have been more sensible and either made the decision not to have children or looked for jobs in a cheaper part of the country.

I can go even further back than Flipperty. DH bought his first flat in 1979 when 2.5 or 3 times salary plus a 10% minimum deposit (and often a history of saving with a particular building society) was the norm. When we bought our first house together, the limit was 3 times main salary, plus once the second salary. We were then both professionals in the public sector, so had well paid secure jobs but we had to wait for a mortgage and were carefully scrutinised by the lender. In 1988-89 our repayment mortgage shot up to 15% - not easy when we had a new baby.
Until house prices come right down, there's no way that many first time purchasers will be able to get their feet on the property ladder.

But interest rates aren;t linked to inflation any more. They used to be, but now the Bank of England is able to set interest rates where they want regardless of inflation.

Inflation does erode the amount of capital, but if interest rates start to rise then sooo many people with big mortgages or interest only mortgages will be much worse off and unable to afford their repayments.

If interest rates go up I think we will see repossessions on an unprecendented scale. So, while I moan about my savings doing nothing, I bought my house such a long time ago that repossession would be very unlikely to happen to us unless we both lost our jobs, and the govt stopped giving out tax credits.

Its not the people who took out big or interest only mortgages that I think have been silly - if something is available then people will take it.

WHat I think has been really silly is the multiples of incomes that can't be sustainable, the interest only with no repayment vehicle morgages, and the general culture of borrowing - all of which has been encouraged by the banks.

Bilsgf got an award at the tsb the other year for selling the most loans in her branch.... and she really thinks the bank is blameless for anyone who got into difficulties.

Oh well, will check back this discussion later, I'm using it as an excuse to put off clearing out a very grubby dusty under the stairs cupboard...