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?!

Ha! I can go even further back than that (sort of). My aunt bought her first flat in the 1950s when she needed special permission from the bank for a mortgage because she was unmarried... Can't give any useful information on multiples of salary but still about it to this day.

"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."

Has anybody told the BOE this as they seem to be fairly sure that a major part of their role is to control inflation through interest rates? Or perhaps you're being facetious?!

I was told by a colleague at work that to get her first bank account she had to have permission from her husband - she is 60, and was married at 18, so that's only 40-odd years ago

The current 'official' brief of the BOE is to keep inflation at 2%. They are meant to achieve this through monetary policy.

Unfortunately there is a limit to their power in today's global economy. THere is also a discussion to be had about what inflation actually is. Depending on how you calculate it it can be whatever you want.

My inflation possibility assumes that salaries rise in line, I would not suggest inflation that puts interest rates into the teens but if we could have inflation of say 5% with 6% interest rates then this may have some effect. It would only work in the short term though because otherwise it would just go up and up.

If less people are in negative equity then repossessions are less likely to bankrupt the economy.

No, I am not being facetious!! The Bank of England can go its merry way now to set interest rates.

I did economics in the 80s when it was accepted that interest rates should be linked to inflation but now apparently the thinking is different.

I didn't say that the bank of England is not using interest rates in an attempt to CONTROL inflation.

There is a difference between using interest rates to CONTROL the rate of inflation; and interest rates being LINKED to inflation, ie inflation goes up or down and the interest rate has to go up or down to follow the rate of inflation.

Flibberty is right I think.They used to be linked set in stone as it were.Now even though inflation has an ideal level the BoE are not responsible for it like they shpild be.Low interest rates have caused a lot of this many people borrowed around the 3% mark and found 6 which is double a struggle.Aswell as taking out introductory 2 yr rates etc they didn't calculate how high rates could go before they were in trouble and most went on monthly figures rather than the big picture.Our first mortgage was with our bank and we had to tell them EVERYTHING!!!!!Rate was 7% ish which is apparently the long term average we borrowed 40k and we could afford it

(Thanks noddy I often am )

I just got a box out from under the stairs then remembered, last year with food and petrol rocketing, inflation was rumoured to be reaching 15-20% if you annualised it. Imagine if your mortgage interest went to 15% as it would have been if interest rates were still LINKED to inflation...

Inflation is often out of the control of politicians etc, so you can't just say it could be x level with interest rates at Y level - who could have forseen all the food and petrol price rises last year?

My mother carried on working when she married my dad in 1959 - she earned more than him - but her earnings were not even mentioned when they applied for their first mortgage, only his.

Looks like they haven't made this cap anyway

But I still think anyone who borrows more than 3 times salary is BONKERS

There are not many advantages to being 39 but getting onto the property ladder in the early 90,s is certainly one of them.

DH and I bought in 1992 with 2.5X joint income and 5% deposit. We had just left uni so very much at the bottom of the career ladder but that amount bought us a 2 bed semi in a town where we wanted to live.

Sold 6 years later and made enough to put down a 10% dep and reduced the term of our next mortgage. We also had savings to put towards doing up this house, a 3 bed victorian semi. 11 years later we are still here. Thank God

A few years ago many of our friends made the jump to the 'forever' family home. 4/5 bedrooms, 3 bathrooms, triple garage sort of thing. However most of them could only afford to do this by borrowing upwards of 5X their income, taking out 120% mortgages or increasing the terms of the mortgage to 25-30 years. Who wants to be paying a mortgage in their late 60's when they all had lovely homes and didn't need to move in the first place.

Bonkers in theory, morningpaper, but we need to remember that just 18 months ago you literally could not buy anything in our local property guide for less than £70K. That's more than three times most people's income.

Nobody knew the crash was coming - the general feeling back then was that house price rises would slacken off until they levelled out. So waiting for prices to drop was not an option.

No one has explicitly mentioned the primary driver for prices. supply and demand. The regulators measures and countermeasures we have experienced in recent years have had the effect of distorting these basic mechanics in the short to medium term... but the have not overridden them. My long term view - non expert - is that living on an island (ie finite land mass) with an almost exponentially increasing population, that is culturally motivated to OWN a property, will only ever put pressure on prices because there is no realistic chance that suffient housing will be built to accommodate all these prospective owners.

So, is 3 x salary going to make a difference? Absolutely it will. But only in the short term, I reckon. Give it a few years and the goal posts will start moving again. Any way, as many of you have pointed out already, there are several other factors at play, quite apart from basic supply-demand.

It is not quite unique to the UK, but not far off. Compare the cultural norms in many other european countries, where there is much less importance attached to owning a house. People happily rent for life.

Fatjac - we took our mortgage out over 35%, but we were 20 when we got the mortgage, and our reasoning as we'd be 55 when it was repaid, plus when we moved we could go to a 20yr mortgage or 25yr to still pay off at the same time. We just need to sell

I saw an article which suggested that house prices had fallen 21% already and could fall another 50%

The puts my house value at about 35 - 40k!!

i really cant see how 3x salary will be enforceable - many people have a base salary and a commission related bonus, other investments, etc etc. that counts in none fat cat industries as much as it applies to bankers bonuses etc.

on a seperate point, some people who pay interest only are happy with the prospect of selling the property at the end of the term and taking a chance on there being some capital growth, its a very warped form of renting i suppose.

I suppose if you have a base salary + commission/bonus, then you will either have to jump through hoops to get the extra part included in the multiple on a 'special' mortgage product, or else you'll just have to save up a much larger deposit with the bonus money. Does anyone know how this situation was dealt with before lax lending took hold?

you used to have supply 3+months worth of payslips and the 3x salary bit was based on that.

this argument does go round in circles

we borrowed a lot and have a big mortgage

we borrowed 3x our income when we first bought a house and then since going self employed we have borrowed an awful lot more than 3 times...

but we live in a nice area that is ( all of our choosing) fantastic for schools etc and very expensive accordingly

so we dont have school fees

school fees for 3 or more children could easily add up to our mortgage payment despite its hugeness! People should think outside the box more- borrowing as many income multiples as we did was not 'bonkers' it was a long term considered life choice

As someone about to take out a mortgage for about 4x my salary, I was v surprised to read about this...especially as I was only yesterday told (by a mortgage advisor in my own bank, which shall remain nameless) I could borrow £260k (which is almost 6x my salary of £45k....... !)

In an ideal world it would be lovely if we could all just have mortgages of 3x salary or less. However, I cant see how that is possible particularly if (like me) you a)live in the London suburbs & b) are a single parent. I would be hard pressed to find a reasonable house in a reasonable area for much less than £200,000 - and with a £20k deposit that means I have to borrow well over 3x my salary to be able to afford anything.

agree hatesponge - our bank loaned us similar

but... if property drops by 50%, or/and if interest rates hit 10% (or 18%) - would you just be okay? Would you just take the hit?

i dont think many people with 3X the salary would be happy at 18%

In 1991 the income multiples were not that high but people struggled

Perhaps 3x salary isn't enforceable but that could become the preferred multiple and, anyone wanting more than that, would have to pay a much higher rate (like sub-prime borrowers used to have to do). I'm undecided if it is a good thing or not - it will be bloody brutal if it did happen.

I think it is enforceable and is already in practice just hasn't been made 'law' as it were.I think most people would struggle to get much more atm

If you go onto mortgage calculators they still offer high multiples. The only difference to previously is that you need to have a higher deposit. I found one (Lloyds I think) that said we could borrow up to £380K . How we'd pay it, even if interest rates don't go up is beyond me.

Really brett?I think if you went to the branch or did the forms it would be different Some of those calculators are inaccurate.I suppose if you have a huge deposit and are less risk.I think they will enforce it later this year

It was based on a large deposit. The calculators are accurate in terms of the deposit requirements. I sincerely hope you are right, however I couldn't believe it!

It's more than 5x joint salaries, I don't know how they even worked it out. Others, including barclays quote 5x if you have a big enough deposit.