No good can come of this:
The precise details of the controls the Bank is to be given will be detailed fully at a later date.
However, they are likely to include restrictions on the loan-to-value ratios offered to customers. For instance, families could be prevented from taking out a mortgage for anything more than 75 per cent of the value of their home.
Or to put it another way, to take out a mortgage on a £200k property, you need would need to have £50k of equity, or spare cash.
And, in the south-east, where the jobs are, £200k will get you a shady bedsit in a run-down area, and bugger all else. Inside the M25, unless you want to live in a mock-up of Mogadishu, £200k is the BOTTOM RUNG of the housing ladder.
For a family with a couple of kids, looking for a house in the catchment area of a half decent school, they’re unlikely to see much change out of £400k. And they’d need £100k in cash or equity floating around for the deposit.
Who the hell has that?
So, the effect will be to put upward pressure on rental prices. At the same time, downward pressure on house prices will emaciate savings and investment, and diminish the equity that the aforementioned family would need to buy their new £400k house.
Fortunately, the house they want is only worth £350k now, having lost 12.5% of its value, but they still need to find an £88k deposit, as well as pay a fortune in stamp duty. Unfortunately, their £200k place is now only worth £175K and therefore £25k of their potential deposit has evaporated.
Now, this may all be a fuss over nothing. The limit may be set at 90% or 95%. I’ve had a 95% mortgage in the past. Released a bit of equity too, when the value increased. Never went into negative equity, never missed a mortgage payment.
The Telegraph cites Northern Rock as a reason for this proposed move:
The collapse of Northern Rock was widely attributed to its policy of lending customers up to 125 per cent of the value of their homes – despite the inability of many to repay the loans.
Well, duh! Again, it’s a case of a few morons flaunting their stupidity, and teacher makes the whole class sit in detention.
Just because some useless pillock got himself out of his depth, does that mean I, with my gold plated credit rating, should not be able to get a 95% mortgage?
Does it mean that anyone (man, I mean) who loses their property to their partner through a divorce, is practically banished from the housing market until he can raise a small fortune for a deposit?
That’s the boat I’m in as it happens & if these proposals come in, I’ll be locked into a rental market that will be experiencing spiralling rent rises. I’ll be unable to take advantage of falling house prices because, when I’m being taxed up to my bollocks on every penny I earn and every penny I spend, so that public sector pensions can be paid, I’m not going to be able to raise a deposit, even on a bloody good salary.
So should there be any limit on how much banks can lend to borrowers?
Regulatory? No. Common sense and good business practice? Yes.
Common sense tells us that the limit imposed by the latter model should be 100%. It also tells us that instead of killing the housing market, punishing the many for the errors of the few, it’d make far more sense to jail the moron executives who crashed Northern Rock.
But that would be too easy. It’s better to screw over people who have done nothing wrong.
Has Cameron forgotten that Thatcher’s biggest single contribution to social mobility was to enable millions of people to enter the housing market?
AJ
Al Jahom's Final Word 
If it’s any comfort there are periods of time when it’s more profitable to rent than buy. The basis is that when you take into account falling house prices and the cost of mortgage and maintenance sometimes renting is cheaper and you aren’t hit with a having to sell a house lower in value than when you bought it. The trick is knowing which period you’re in! :-)
Three bed enough?
http://www.teamprop.co.uk/properties/ERW2896/3-Bedroom-House-For-Sale-in-WICKFORD-ESSEX.aspx
£199,995 walking distance to the Station and one hour by train from Liverpool Street.
If you think £200K is too little perhaps you need to think ‘outside the box’.
meh – we can argue about the exact figure all day, along with locations, crime rates, amenities, motorway links etc.
The general point stands, does it not?
Oh yes the points completely valid. I don’t want some central control over this. We have had enough centralised database control freakery for one lifetime with that utter twunt the feckwit Brown.
I just point out that £200K from your example is adequate for most of us. I live three miles from that place ..in a smaller house actually teeny bit better neighbourhood. Excellent amenities, transport links and locally a fairly low crime rate.
But if I lived in your area then maybe your probably right that I’d need shedloads more for an equivalent.
Well, if these poor buggers can’t pay the asking price and the house languishes then it is simply over priced and will not sell until it reaches a price the market, or a very large slice of it, can afford. Do market forces not work in the housing market? Negative equity and all that unpleasantness during the early 1990s suggests they do. I bought my first house in 1981. I had to find 20% of the value as a deposit and was paying 18% interest on the mortgage. I naughtily used a bank loan and a small parental gift plus part of my wife’s pension pot to make up the deposit. The interest rate was no fun at all. You paid more if you borrowed over £25K back then. I managed to negotiate it down to a much better 16% after 6 months. People with mortgages these days don’t know how lucky they are with interest rates so low.
It seems like prices are stagnant and falling in real terms due to inflation.
Problem is, surely they can’t allow significant deflation of house prices, or how are they going to inflate away the national debt?
If the house remains unsold because people cannot get mortgages then the price will have to come down. Market forces. It may even work to the advantage of those of us with no mortgage and 100% equity…rubs hands with glee!
Like Chalcedon I had to find 20% deposit, equal to a years gross income, for my first house.
But 100% mortgages are daft. House prices do fall and 100% means instant negative equity. Also 100% mortgages lead to the silly annual increases in house prices we have seen in recent years. The only people who benefit are those who inherit.
All well and good but if you look at house-price to earning ratios, things are not what they were 20-30 years ago.
Back then, 20% deposit may have been a year’s salary. Now it’s more like 2-3 years.
And if you look at the graphs, ratios rocketed beyond all recognition under Labour.
http://www.housepricecrash.co.uk/graphs-average-house-price-to-earnings-ratio.php
“Back then, 20% deposit may have been a year’s salary. Now it’s more like 2-3 years.”
Which implies, does it not, that housing is currently overvalued?
Oh it most certainly does, but any attempt to deflate it would be political and economic suicide.
Yet another legacy of Labour. :o(