Re: Mortgage rates and inflation

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.

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).

-- Andy

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.

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.

And what evidence do you have for your similar statement of "Someone with a

So if someone wanted a 4* salary mortgage, they'd probably check the mainstream lenders, and find the Woolwich are willing to give them a 4* salary mortgage! How hard is that? It only takes one lender to give them the mortgage they need, and if that one lender is a well known mainstream lender, I'd say that was "quite easy".

In message , Andy Pandy writes

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.

"Andy Pandy" wrote in message news:ber8mi$v8h$ snipped-for-privacy@newsg4.svr.pol.co.uk...

Also for the record, Halifax will lend over 4* dependant on credit score and will increase multiples if taking a fixed rate, so they don't come much more mainstream than that (biggest mortgage lender in UK), also Alliance & Leicester, Bristol & West do and Natwest and Nationwide may also do although these 2 use a net monthly income multiple rather than gross annual pay to work out maximum borrowing, so it can often work out above 4*.

And Accord mortgages who are a subsidiary of Yorkshire BS will do 4* joint at 75% LTV.

This ignores a lot of the regional lenders and specialists, but 4* is widely regarded in the industry as the current standard.

Hope this helps sort this out for you guys.

Arfie

As I say, I looked for a mortgage a year ago and found exactly that. I suppose it's possible that limits have been relaxed in the last year, but I doubt it.

In any case, if I do a search on moneynet, over 4*salary (and with LTV less than 80%), no other restrictions, I get one hit, the Beverley B/soc will do 4.25 times (but only 3.5* joint). At 4* I get more, but over

(God I hate moneynet, a highly useful site ruined by popups and other garbage ...)

Evidently Woolwich have pulled back since they aren't in the list I just got. The closest you get to a mainstream lender in that list is Bristol & West, and they aren't particularly prominent (other than the Halifax with one specialised product). In any case you seem to have missed my point, I accepted that people can get 4* mortgages but at current rates I think that is easily affordable. Your contention was that people have such high multiples that they can't afford to repay significant amounts of capital, and for that to be true the multiple would have to be more like 7*.

In article , Andy Pandy writes

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.

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.

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).

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.

In article , Andy Pandy writes

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?

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....

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.

In article , Andy Pandy writes

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.

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.

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.

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

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.

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.

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