Re: Mortgage rates and inflation

[Stephen Burke]

a0000000000 > wrote:
> But what happens in the next 10 years when the current 1st time
> buyers want to trade up? They will have made little impact on their
> mortgage, their real assets will have grown very little, and the next
> house will in effect be as unaffordable as it was when they bought
> their first home.

That isn't true, or at least it doesn't need to be. Someone with a 4*salary
mortgage, about the maximum you can get on normal terms, will be paying about
16% of their salary in interest at current rates. I would think that most
people could afford to pay 25-30% of salary in repayments without too much
strain (after all that would have been the repayment a few years ago when base
rates were at 7%), i.e. they can repay maybe 3-4% of the mortgage even in year
1. At that rate the mortgage will be more than half gone in ten years. Also
salaries in general are likely to grow with the economy, i.e. maybe 4-5% a
year, and the salary of many people will grow faster if they get increments or
promotions, and again over ten years that will make a substantial difference.

> Should 1st time buyers be saving if they can to afford their family
> home or trying to pay their mortgage off early??

Yes - but with low interest rates it shouldn't be hard.

--
Stephen Burke

[Stephen Burke]

Andy Pandy > wrote:
> most people can't afford to pay their mortgage interest plus make the
> necessary capital repayments to shrink the real value of their
> mortgage as fast as in the good old days.

Do you have any evidence to back that up? I don't think it's true, as far as
I'm aware few lenders will lend over the traditional salary multiples and that
should leave lots of headroom for overpayment.

--
Stephen Burke

[a0000000000]

"Stephen Burke" > wrote in message
...
> That isn't true, or at least it doesn't need to be. Someone with a
4*salary
> mortgage, about the maximum you can get on normal terms, will be paying
about
> 16% of their salary in interest at current rates. I would think that most
> people could afford to pay 25-30% of salary in repayments without too much
> strain (after all that would have been the repayment a few years ago when
base
> rates were at 7%), i.e. they can repay maybe 3-4% of the mortgage even in
year
> 1. At that rate the mortgage will be more than half gone in ten years.
Also
> salaries in general are likely to grow with the economy, i.e. maybe 4-5% a
> year, and the salary of many people will grow faster if they get
increments or
> promotions, and again over ten years that will make a substantial
difference.

I think that your calculation fails to take account of income tax?? But at
an average rate of tax the 4x salary multiple and current average mortgage
rate of 4.5% results in about 25-30% of post tax income being spent on
housing - about inline with the long term ratio. However

My question is how many people have actually woken up to the problem and
proactively helping themselves ?? Not many I suspect.

[Stephen Burke]

Andy Pandy > wrote:
> It's quite easy these days to get a 4x salary mortgage, and with

Again, what evidence do you have to back that up? Just saying it doesn't make
it so! I took out a mortgage a year ago and I think the Woolwich were about
the only mainstream lender offering 4*, nearly everyone had 3.25* or 3.5* as a
maximum (I ended up with 3.5* from the Cheshire). There are of course
self-certified mortgages, but usually with higher rates and I've not seen
anything to suggest that the majority of people are using them. The figures
Daytona posted recently showed that the average multiple is still about 2.5
even for FTBs. Also couples are still penalised, you certainly won't get 4*
joint salary, presumably on the assumption that women are likely to have
children and stop work even though many don't.

--
Stephen Burke

[john boyle]

In message >, Andy Pandy
> writes

>It's quite easy these days to get a 4x salary mortgage, and with interest rates
>at the level they are now I doubt most people would be too worried about taking
>out a 4x salary mortgage.
>
>When I got my first mortgage in 1990 interest rates were around 15% - there is
>no way I would ever have considered getting a 4x salary mortgage even if a
>lender offered me it. Mortgage interest alone would have been about 75% of take
>home pay (even accounting for MIRAS).

Whilst 4x mortgages are available, they arent available to everybody and
only a tiny proportion of people use that amount, and then usually those
who will expect a fairly big increase in salary or a partner returning
to work etc.,

The vast majority are within traditional multiples of 3 - 3.25.
--
john boyle

[Richard Faulkner]

In article >, Andy Pandy <spamspamspams
> writes
>then first time buyers and those
>moving upmarket must either have vastly increased deposits or they must be
>buying lower quality housing.

One thing that rolls of my tongue when asked who can afford to buy the
houses in my area - Old Trafford & Whalley Range where a terrace that
was £35,000 in 1998 is now £100,000 - is "the people who would have
bought in Chorlton & Didsbury, if they could afford it", Chorlton &
Didsbury are the adjacent areas, and more expensive.

This would suggest that they are buying "lower quality" housing.
However, the fact that people with more money are buying in an area that
used to be poor quality, investment and bedsit, land, is making the
areas more attractive to others, (their peers?). Thus the area is
experiencing an increase along the lines of the general market, plus an
increase as a result of improved perceptions. The concomitant being that
the "quality" of the area and houses is improving.
--
Richard Faulkner

[Andy Pandy]

> wrote in message ...
> > OK, point taken, but my point was that with higher interest rates, people
are
> > likely to borrow lower salary multiples. If this is not true, and people are
> > still borrowing the same salary multiples as 5 years ago, then, given that
house
> > price inflation has vastly exceeded salary inflation over the last 5 years
(I
> > hope you can accept this without evidence), then first time buyers and those
> > moving upmarket must either have vastly increased deposits or they must be
> > buying lower quality housing. There may be some truth in the former (eg
people
> > inheriting property), but I can't believe this is very significant. If the
> > latter, then these people need to pay down their mortgage at a much faster
rate
> > than in the past to "catch up" with a person who bought 5 years ago.
>
> This was the point of Daytona's recent comment (maybe you missed it) that
> the CML stats seem to show that the salaries of FTBs have risen by 60%
> in the past 5 (?) years. The point of course being not that salaries have
> risen that much, but that people at the bottom end are just unable to buy.

Yes, and presumably those that can afford to buy are buying smaller/worse
location houses than those on a similar salary 5 years ago. Therefore they need
to pay down their mortgages faster than in the past if they want to catch up
with those who bought 5 years ago.

> From my own experience: just over 1 year ago I took out a 3.5*
> salary mortgage, which was near enough the maximum, as I say there were
> a few lenders offering 4* but with less attractive rates. With just the
> mortgage I could not have bought at all: the house I bought was not far above
> the cheapest in the market, at least for properties which were reasonably
> desirable, but a 3.5* salary mortgage only came to 2/3 of the price.
> Of course I had a 1/3 deposit, but someone without a deposit would be
> stuck. (My employer is one of the largest in the area and I'm on a
> reasonably senior grade ...)

Talking to a couple of friends today - they've just taken out a ridiculously
large mortgage at 3.5* joint salary, very good deal as well. I'm sure when I was
looking round in 1990 no lender was offering 3.5* joint (think the best tended
to be about 3.5* highest salary plus 1-1.5 time lower salary).

--
Andy

[Andy Pandy]

"Richard Faulkner" > wrote in message
...
> >then first time buyers and those
> >moving upmarket must either have vastly increased deposits or they must be
> >buying lower quality housing.
>
> One thing that rolls of my tongue when asked who can afford to buy the
> houses in my area - Old Trafford & Whalley Range where a terrace that
> was £35,000 in 1998 is now £100,000 - is "the people who would have
> bought in Chorlton & Didsbury, if they could afford it", Chorlton &
> Didsbury are the adjacent areas, and more expensive.
>
> This would suggest that they are buying "lower quality" housing.
> However, the fact that people with more money are buying in an area that
> used to be poor quality, investment and bedsit, land, is making the
> areas more attractive to others, (their peers?). Thus the area is
> experiencing an increase along the lines of the general market, plus an
> increase as a result of improved perceptions. The concomitant being that
> the "quality" of the area and houses is improving.

OK, but this means that those people who bought 5 years ago have also seen the
quality of the area rise just as much. So someone who bought a terrace in Old
Trafford in 1998 for £35k with a 90% mortgage would have £31.5k outstanding on
his mortgage even if he only paid the interest.

His new next door neighbour who bought this month for £100k with a 90% mortgage
needs to pay down £58,500 to get into the same position as the guy next door, on
top of paying about 3 times as much interest initially. Which illustrates my
point about buyers now needing to pay down their mortgage faster than in past to
get into the same position.

--
Andy

[Richard Faulkner]

In article >, Andy Pandy <spamspamspam
> writes
>
>"Richard Faulkner" > wrote in message
...
>> You are obviously quite correct, (and I must admit that I cant recall
>> the thrust of the original post), but you are describing a situation
>> which has been happening regularly over at least the last 45 years.
>
>The thrust of the original post was that it's harder these days to move up the
>"property ladder" than it was in the past.
>
>> Why do buyers "need" to get into the same position as their neighbours.
>
>They don't need to. The issue being discussed in this thread is whether it's
>harder for them to, or not.
>
>--
>Andy
>
>
>
OK. Thanks for that. I think the timing of a discussion like this is
critical, and I would expect that it takes place at the peak of every
property boom. I would also guess that the hypothesis is usually that
that it is harder "now" than it had been "before".

I got on the ladder in 1984 when I earned £8,000 a year and bought a
£23,500 new semi in Derby, using £3,000 as a deposit. I dont know how I
got the deposit, I certainly hadnt saved it. probably a mixture of
overdraft and credit cards.

I think my repayments were around £180 per month.

I would guess that the same job pays about £25K now and, to buy a £100K
house, (possible in many parts of the country, if not the South East &
London), I would need a £5,000 deposit, and would have a £95K mortgage.
Repayments around £500 per month.

In relative terms, not much difference really?

Except that, at the time the discussion takes place, everyone who poses
the hypothesis is worried about buying a house and it falling in value.

So...

I would suggest that it is no harder now to get on the property ladder
than it has been in the past.

What is true is that the property bought wont rise as much in the next
few years as it has in the past few, but so what?






--
Richard Faulkner

[Andy Pandy]

"Richard Faulkner" > wrote in message
...
> I would suggest that it is no harder now to get on the property ladder
> than it has been in the past.

Well, from Stephen's earlier post it would appear that the average FTB's salary
has increased by 60% over the last 5 years, the implication of which is that
those at the lower end of the salary scale can no longer afford to buy (since
salaries haven't risen by 60%).

In any case, the issue was the ability to move upmarket, rather than the ability
to buy the first property....

> What is true is that the property bought wont rise as much in the next
> few years as it has in the past few, but so what?

So what indeed. If you're looking to move upmarket the last thing you want is
high general house price inflation, since it'll most likely increase the cost of
your next house by more than the gain you'll make on your current house.

When I moved in 1999, house prices in our area had gone down about 10% since I
bought, and I sold my first house for about £5000 less than I bought it for. But
I saved about £12500 on my new house, so I was better off by about £7500 through
house prices falling. Obviously it's a different story if you get into the
dreaded negative equity.

--
Andy

[Stephen Burke]

Andy Pandy > wrote:
> Yes, and presumably those that can afford to buy are buying
> smaller/worse location houses than those on a similar salary 5 years
> ago. Therefore they need to pay down their mortgages faster than in
> the past if they want to catch up with those who bought 5 years ago.

Clearly they *won't* catch up, at least unless prices fall back substantially.
People who bought five years ago are also able to pay the mortgage down faster
as rates have fallen, and they had a smaller mortgage to start with.

> well. I'm sure when I was looking round in 1990 no lender was
> offering 3.5* joint (think the best tended to be about 3.5* highest
> salary plus 1-1.5 time lower salary).

Considering that base rates were 15% in 1990 a 3.5* joint mortgage would have
been pretty suicidal!

Incidentally, a few years ago it was quite common for people in this group
to ask how they could get higher-multiple mortgages, but I haven't seen that
kind of question for a fair while. Two possible answers of course: people are
more cautious, or lenders are giving higher multiples more easily ...

--
Stephen Burke

[Richard Faulkner]

In article >, Andy Pandy <spamspamspams
> writes
>
>"Richard Faulkner" > wrote in message
...
>> I would suggest that it is no harder now to get on the property ladder
>> than it has been in the past.
>
>Well, from Stephen's earlier post it would appear that the average FTB's salary
>has increased by 60% over the last 5 years, the implication of which is that
>those at the lower end of the salary scale can no longer afford to buy (since
>salaries haven't risen by 60%).
>
>In any case, the issue was the ability to move upmarket, rather than the ability
>to buy the first property....
>
>> What is true is that the property bought wont rise as much in the next
>> few years as it has in the past few, but so what?
>
>So what indeed. If you're looking to move upmarket the last thing you want is
>high general house price inflation, since it'll most likely increase the cost of
>your next house by more than the gain you'll make on your current house.
>
>When I moved in 1999, house prices in our area had gone down about 10% since I
>bought, and I sold my first house for about £5000 less than I bought it for. But
>I saved about £12500 on my new house, so I was better off by about £7500 through
>house prices falling. Obviously it's a different story if you get into the
>dreaded negative equity.
>
>--
>Andy
>
>
>

Moving up the ladder.....


Assuming the person looking to move up the ladder bought their current
house 3/4 years ago, or more, they are going to have a sizeable chunk of
equity. lets say they bought a £40,000 terrace in 1999 that is worth
£90,000 now.

With the advent, (in more volume), of non status mortgages, the size of
a loan need only be limited by the desire of the borrower to borrow, and
their "deposit".

Thus, with £30,000 of equity to deposit on the next house, (setting
aside £20,000 for "things", most people can borrow up to £170,000 to buy
a £200,000 house. Not a bad jump up the ladder from their £90,000 house.

Admittedly the loan repayments will be around £1,000 per month but, if
they dont like this, they could buy a £150,000 house, and put the extra
£20K in. Still not a bad jump up the ladder.

In most areas at present, negative equity should not be an issue for
someone wanting to move.

It may actually be easier to move up the ladder these days than in the
past.


--
Richard Faulkner

[Stephen Burke]

Richard Faulkner > wrote:
> With the advent, (in more volume), of non status mortgages, the size
> of a loan need only be limited by the desire of the borrower to
> borrow, and their "deposit".

As long as the borrower accepts a significantly higher interest rate and the
likelihood that they will have to move out and sell if interest rates rise
significantly.

--
Stephen Burke

[Stephen Burke]

George Hills > wrote:
> Their checks on the truthfulness of borrowers' salary claims seemed
> less than thorough to me.

I had to provide a huge amount of documentation, including salary slips and
six months of bank statements (also utility bills and original birth
certificate IIRC). I've only done it once so I have no idea how typical that
is.

--
Stephen Burke

[nowhere@home.com]

On Tue, 22 Jul 2003 00:49:58 +0100, Richard Faulkner
> wrote:

>Assuming the person looking to move up the ladder bought their current
>house 3/4 years ago, or more, they are going to have a sizeable chunk of
>equity. lets say they bought a £40,000 terrace in 1999 that is worth
>£90,000 now.
>
>With the advent, (in more volume), of non status mortgages, the size of
>a loan need only be limited by the desire of the borrower to borrow, and
>their "deposit".
>
>Thus, with £30,000 of equity to deposit on the next house, (setting
>aside £20,000 for "things", most people can borrow up to £170,000 to buy
>a £200,000 house. Not a bad jump up the ladder from their £90,000 house.
>

Most people cannot get a £170,000 mortgage! If you assume a 3.5x
salary increment then they must earn at least £48,571 pa., somewhat
higher than the national average income. Considering your
hypothetical buyer bought a £40,000 house in 1999 (on a income of
£11,428?) then he must have had a pretty good pay rise in the
meantime!

Mark

[Arfie]

> As long as the borrower accepts a significantly higher interest rate

Not so, Abbey National and Halifax, two of the UK's largest lenders allow
self cert to 85% lTV on all their products, so interest rates are not loaded
in the slightest.

> and the likelihood that they will have to move out and sell if
> interest rates rise significantly.

This is true and lets hope the press start pushing this fact home to help
the public realise. The regulators are looking at blocking self cert for
employees, to try and reduce the impact, that this will inevitably have.

[Arfie]

john boyle wrote:
> In message >, Arfie
> > writes
>>> As long as the borrower accepts a significantly higher interest rate
>>
>> Not so, Abbey National and Halifax, two of the UK's largest lenders
>> allow self cert to 85% lTV on all their products, so interest rates
>> are not loaded in the slightest.
>
> Not to everybody though, its all down to credit score and this
> sometimes they will only let you have a 'no proof of income' on
> certain schemes .

Whilst this is true, is doesn't deflect from the fact that my point is that
self cert borrowers do not have to pay "significantly higher interest rates"
as they are available through major high street lenders, with Abbey still
there if Halifax won't do it along with many other lenders, they were just 2
examples.

The point about credit scoring is not relevant as this process applies to
all borrowers through Halifax and as far as I can see there is no
restriction on which products can and can't be self certed either (although
I do tend to let the computer filter out irrelevant schemes).

Arfie

[Stephen Burke]

wrote:
> On Tue, 22 Jul 2003 00:49:58 +0100, Richard Faulkner
> > wrote:
>> With the advent, (in more volume), of non status mortgages, the size
>> of a loan need only be limited by the desire of the borrower to
>> borrow, and their "deposit".
>
> Most people cannot get a £170,000 mortgage! If you assume a 3.5x
> salary increment then they must earn at least £48,571 pa., somewhat
> higher than the national average income. Considering your

I think you missed the point, non-status mortgages don't work on salary
multiples, you just promise to pay - at a higher rate than usual no doubt, and
with a reasonably low loan-to-value ratio so the lender can (probably) get its
dosh back if you default. At 5% a 170k interest-only mortgage would cost 8.5k
a year which is not that much. OTOH you will be blown away if interest rates
rise and/or house prices fall.

--
Stephen Burke

[Arfie]

john boyle wrote:
> In message >, Arfie
> > writes
>> The point about credit scoring is not relevant as this process
>> applies to all borrowers through Halifax and as far as I can see
>> there is no restriction on which products can and can't be self
>> certed either (although I do tend to let the computer filter out
>> irrelevant schemes).
>
> In my direct personal experience they DO restrict the schemes. I have
> handled a case in which they said 'they cant have that amount on
> product A123, but can have it B456'. (And it wasnt becuase one scheme
> offered a different max LTV.)

Is this not where they offer higher income multiples on certains schemes
like the fixed rates?

I had one identicle to that, the guy could self cert, but the amount he
declared wasn't enough for a tracker and he could only have the 5 year fixed
rate with the 4.83x income multiple.

This is nothing to do with self cert, just not enough declared income for
that scheme, had his declared income level been higher, Halifax head office
confirmed that he could have had any scheme they offer on a self cert basis.

Arfie

[Richard Faulkner]

In article >, Arfie
> writes
>
>
>john boyle wrote:
>> In message >, Arfie
>> > writes
>>> The point about credit scoring is not relevant as this process
>>> applies to all borrowers through Halifax and as far as I can see
>>> there is no restriction on which products can and can't be self
>>> certed either (although I do tend to let the computer filter out
>>> irrelevant schemes).
>>
>> In my direct personal experience they DO restrict the schemes. I have
>> handled a case in which they said 'they cant have that amount on
>> product A123, but can have it B456'. (And it wasnt becuase one scheme
>> offered a different max LTV.)
>
>Is this not where they offer higher income multiples on certains schemes
>like the fixed rates?
>
>I had one identicle to that, the guy could self cert, but the amount he
>declared wasn't enough for a tracker and he could only have the 5 year fixed
>rate with the 4.83x income multiple.
>
>This is nothing to do with self cert, just not enough declared income for
>that scheme, had his declared income level been higher, Halifax head office
>confirmed that he could have had any scheme they offer on a self cert basis.
>
>Arfie
>
>

Why didnt he just declare a higher income? The idea behind self cert is
that they dont check your income.


--
Richard Faulkner

[Arfie]

>
> Why didnt he just declare a higher income?

Lie you mean?

He gave his income figures, the computer calculated it was OK, but after
Halifax did a credit score and it was a low score the income multiples were
reduced. He wanted me to re-submit it for him with higher figures, I
obviously wouldn't be part of a dishonest application and told him so in
writing and then went and re-applied to Halifax through another broker with
higher figures and got caught out. ;-)

> The idea behind self cert is that they dont check your income.

The idea behind self cert is for people who have income that doesn't fit in
with the lenders normal criteria (ie the self employed, commissioned sales
people and temporary workers) can still borrow a suitable amount, it is not
so you can say you get £50,000 if you only get £30,000, this is plain lying
and it is irresponsible and a disaster waiting to happen.

Arfie

[Stephen Burke]

Arfie > wrote:
> Not so, Abbey National and Halifax, two of the UK's largest lenders
> allow self cert to 85% lTV on all their products, so interest rates
> are not loaded in the slightest.

So what are the rates? They may not load the SVR, but what about discounts?
Also I'd point out that Richard said non-status rather than self-cert, not
quite the same thing.

--
Stephen Burke

[Richard Faulkner]

In article >, Arfie
> writes
>>
>> Why didnt he just declare a higher income?
>
>Lie you mean?
>
>He gave his income figures, the computer calculated it was OK, but after
>Halifax did a credit score and it was a low score the income multiples were
>reduced. He wanted me to re-submit it for him with higher figures, I
>obviously wouldn't be part of a dishonest application and told him so in
>writing and then went and re-applied to Halifax through another broker with
>higher figures and got caught out. ;-)
>
>> The idea behind self cert is that they dont check your income.
>
>The idea behind self cert is for people who have income that doesn't fit in
>with the lenders normal criteria (ie the self employed, commissioned sales
>people and temporary workers) can still borrow a suitable amount, it is not
>so you can say you get £50,000 if you only get £30,000, this is plain lying
>and it is irresponsible and a disaster waiting to happen.
>
>Arfie
>
>

Arfie,

I agree, in principle, with what you are saying. However, it is a fact
that the lifestyle of someone earning £50,000 p.a. may be such that they
could not afford to repay the mortgage which the salary would warrant.
Equally factual is the possibility that the lifestyle of someone earning
£30,000 may be such that they could easily afford to repay the mortgage
which a £50,000 salary would warrant, and I dont think the lenders could
blame someone who takes advantage of their system.

The guy you refer to was obviously somewhat naeive to think that they
would not match his declarations.

Having said all that - if you want people to be whiter than white, they
can take out Non-Status mortgages, which is perhaps what I should have
discussed in the first place <g>. As Stephen pointed out, the thrust of
my own argument is based on Non Status mortgages.


--
Richard Faulkner

[john boyle]

In message >, Arfie
> writes
>
>Is this not where they offer higher income multiples on certains schemes
>like the fixed rates?

Not in this case, it was based on credit score.
>
>I had one identicle to that, the guy could self cert, but the amount he
>declared wasn't enough for a tracker and he could only have the 5 year fixed
>rate with the 4.83x income multiple.
>
>This is nothing to do with self cert, just not enough declared income for
>that scheme, had his declared income level been higher, Halifax head office
>confirmed that he could have had any scheme they offer on a self cert basis.

I'm aware of the situation you describe, but I stand by what I say.

I futher example is that they will ask for proof of income on one scheme
and not on another because of credit score.
--
john boyle

[Arfie]

<snip>

I'll get my coat :-)

Arfie