Mortgages

[sobrique]

On the radio this morning was a news article about how Abbey National are relaxing their limit on how much money you can borrow on a mortgage.

BBC Link.
Summary? Abbey have said 'ok, you can borrow 5x your salary, rather than the traditional 3.5x'.

There was a little bit of froth from someone who was saying that this was bad, because now people would be looking at 200-250 thousand pound houses. Now, I'm not sure about anyone else, but I always thought that 40-50 grand a year was a quite well above average salary.

Now, I've just had a look at house prices around coventry: http://www.upmystreet.com/property/prices/l/Coventry.html

What that one says is that Average price of a house in coventry in the first half of 2006 was 147 thousand. With a detached averaging at 304 thousand, and a flat at 117 thousand.

A 3.5x mortage means you need to be earning 33,000 a year to afford an 'average flat'. Even a 5x requires 23 thousand pounds a year. I seem to recall that's quite a way above an 'average salary', although I'll admit I've not actually checked recently. Is it only me who thinks that 'average salary' should be able to afford an 'average house'?

There's actually a nice graph at the bottom of that BBC article, that's saying currently 'average house price' is actually 6.1x 'average salary'.

Of course, lets not even start on how much pain is involved in a 5x mortgage over a 25 year term. Rough guessing at rates suggests that it'll be about half of take home pay. 5% rate, 147k, 25 years is about £850 out of a £29,400 salary, of which you'd actually see about £1600-1700, so around half.

Personally I think upping the cap isn't all that bad an idea. Quite a few people were using the 'self assessment' deals to lie anyway. Of course, it also means that there will be a swathe more people able to buy into the property market too, which will probably serve to spike prices even further.

Comments

[sobrique.livejournal.com]

I think that'll happen. Banks will extend amounts people can borrow until the point where they literally cannot any more, and then as you get close to that line more and more will start to end up with unpayable debts. Some due to bad planning, but no small fraction due simply to changes in circumstances. (Having children being an obvious one that can seriously mess with financial planning, but shifts in employment etc. counting too)

Of course, the real question is whether this is a bad thing in the general sense. I'm not so sure that banks do have to be responsible in their lending. Surely it's the responsiblity of the borrower? Yes, it may cause a big shift in propery prices, as that propensity you mentioned kicks in, but it'll be a lesson well deserved if it does happen.

[siryel.livejournal.com]

I think the responsibility comes from both. The borrower should ensure they only borrow what they can pay back and the financial institution should make sure that they will get the money back.

It seems in the UK that everything can be bought on credit regardless of the financial situation.

I know for a fact that if I was still living in France, with a mortgage, a credit card and a loan as I currently have, asking them for a 5k loan for a clubbing holidays in Ibiza, the person would laugh at me and tell me to come back when I finished paying one of the 3. In the UK, there are people ringing, emailing, writing every day to make sure I borrow that extra 5k, may be 6 if I ask nicely so that I can have that fantastic holiday. I chose not to take it because I know that if I did it would be financial suicide. It seems I have a bit of sense, not everyone does though, and that's where I think the financial institutions have a duty of care, they shouldn't push people to bankruptcy. I agree that people should be responsible for their own finances, although when they are not, the businesses that lend money should say no rather than try sell more