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

[karohemd.livejournal.com]

And that's why I will be staying in this rented studio until I either win the lottery, find that dream job or move back to Germany...

[siryel.livejournal.com]

It can eventually collapse the house market when the borrowers cannot meet their mortgage repayments anymore, if other banks follow Abbey's lead. Bad, bad thing for one who has just bought. Or lead to people extended their mortgages so much that their children will end up paying for the house, as some other European countries already do.

As for average salaries affording average houses, that's not all true knowing the British people's propensity at leaving above their means and borrowing more than they can afford to pay back.

On that side of things, I think Banks and money lending establishments have a duty to be responsible in their lending, although they don't seem to have realised that yet.

[sebbo.livejournal.com]

saw it, wanted to blog, and obvioulsy you had already picked up on it :)

I was somewhat ... disconcerted for the same reasons Syriel was mentioning. Spending seems more important to people than saving and debts are taken to be a norm and not taken as seriously as they should be. I'm not sure people realise how much it actually costs them and only look at what they can afford... or seem to be able to afford.

5x morgages... bah. The way the housing market is going one may need to consider to become a house building apprentice, work the industry for a couple of years, build your own house, then move back to your old profession :)

Given the situation i'm in, i'm also hoping the market will crash badly. Its the only way to get there.

Furthremore this whole house owning culture is very much a british thing. At least a few years ago when i looked at it british house ownership was comparatively high, something to do with gov policy a few decades ago to encourage ownership. So maybe the expectations this has built are not realistic anymore in the current circumstances? House ownership is certainly moving into the maybe direction from the definately direction, though this may just be temporary.

[sobrique.livejournal.com]

I have just taken out a car loan, so I can well appreciate that. The burden of debt in this country is gradually getting nuts. The problem being any steps to take to 'mediate' get a large fraction immediately going 'wahey bigger loan' and borrowing more for the extra hundred pounds a month more debt they can service.

I want to buy a house. It's getting close to being in reach, but still not _quite_ there yet. I am starting to understanding the 'married for financial reasons' comment that I could never understand as a child.

[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.

[sobrique.livejournal.com]

What's the situation in Germany like? I had heard that more tend to rent 'on the continent' and that house ownership wasn't really considered the norm at all. Or is it just that it's not the case where everyone's mad and considers money in terms of how much debt they can afford to service.

[mister-jack.livejournal.com]

Points to note:

1. They're only offering this on a income of over £50,000, and with a 25% deposit.
2. First time buyers are not buying average price houses.
3. This is nothing new. Abbey are, however, the first large bank to offer it publically and officially.

Basically, the whole thing is arse, based on entirely unreasonable expectation of home ownership early in life. Historically many, many more people rented than do today. People who did buy houses tended to do it later in life and buy smaller places than young FTBs are today.

[karohemd.livejournal.com]

In big cities, ownership is definitely rarer than here. Although people do own their own flats, it's not the norm.

This is most likely a mentality issue, Britain has the highest per head debt in Europe whereas in Germany it's among the lowest (in reverse, Brits are the worst energy conservers while Germans are the best). As someone else above mentioned, Brits tend to love spending money they don't have while Germans (in general) don't. Incidentally, these are the two personality traits (going into debt without thinking and wasting energy) that irritate me the most in Brits.

While housing on the whole is cheaper (a modern, standard - which in Brit standards would be a luxury - two-bed apartment in Nuremberg, which is a bit bigger than Coventry, would cost around €150K which is about £100K. I'd reckon that you'd pay at least 200K for a similar place in Cov.
Rents are definitely cheaper (monthly rent for the above would easily be less than £500 a month). I couldn't believe it when I moved to Cambridge 10 years ago and paid the same amount of money for a room in a shared house than I did for my own flat in Nuremberg (which was three times the size). Now the discrepancy is even worse.
Sharing a house as a "professional" (i.e. someone with a steady job and income) is almost the norm here whereas Germans value their "own four walls", even if it's just rented in an apartment block.

This is also reflected in interest rates. With a German mentality (saving), living in the UK is great (I get 4.x% on a standard savings account here, in Germany I'd get maybe 1.5). If only the prices (of everything, not just housing) were similar, I'd be laughing.

If the employment situation in Germany (especially in my line of work) were better, I'd go back in an instant. After tax and other deductions (which are far higher in Germany, just under 50% for unmarried), I'd earn roughly the same amount of money in a similar job but that money would go almost twice as far. Go to any shop in Germany and you'll see roughly the same prices (only in Euros instead of pounds).

[feanelwa.livejournal.com]

I think expectations of house ownership are so common in the UK because the renting market is so unreasonable - landlords getting away with renting out houses with leaky single glazed windows that don't lock and no insulation, a semi-working bath and no shower, etc etc, for giant rents because they've figured out if everybody's charging ridiculous amounts, we have no choice but to pay it. That makes me more angry than never being able to own a house, to be honest - I'm single and always will be, and I have the good sense to know how to keep warm and mend things, but there will always be people who are stupider and have more dependents whose lives can be made truly pathetic by house owners' lust for more money.

[feanelwa.livejournal.com]

The reason the property market is so stupid at the moment is because first time buyers are borrowing/taking the deposit from their rich parents with their huge inflated houses on which they can take out second mortgages. It's all built on levels and levels of debt, and unless the banks that have my savings go bankrupt, I'm too poor to be directly affected by any of it, for my only debt is a very large student loan.

[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

[sebbo.livejournal.com]

living in England i have certainly adopted some of those above mentioned habits, such as not saving much. At least i have no debts, right :)

And yes, from the occasional comments i catch it seems that German house prices are stagnating, and maybe even falling. (careful, this may be seriously out of date info). So if I had the money i might buy a nice place in Germany, rent it out to pay for my rent over here... hehe. Makes no sense... just a stupid thought.

I have more seriously considered buying my parents house though, but thats probably for other reasons than renting or living in it.

And yes, i can't believe i'm paying 525 a month for the shithole i live in, but thats just it.