Re: Are UK house prices sustainable? : Fri Dec 09, 2011 10:23 am  

tw15 wrote:

We probably should be at 3 x couple's salary (repayment) + 15% deposit.

No. Between 5-10% is sufficient.

There are two reasons for this - the obvious one is the ability to save up the deposit. If the buyer has no deposit, then you have no buyer. It's as simple as that.

The other is less obvious. Banks are not in the business of taking risks, and therefore want an effective cast iron guarantee that if they repossess your house, they can sell it on for more than they have lent you. Otherwise, they need to chase you for the balance, which they'll probably never get, and incurs costs.

A couple of years ago where falls were predicted to be about the 15% mark, then yes, banks are justified (in their own minds anyway) asking for a 20% deposit. The loss lies with you, not the bank, then.

However now, prices seem to be stabilising somewhat, and no matter what the scaremongers say, further falls of 15% are unlikely. The banks acknowledge this, because there are 95% LTV mortgages on the market, albeit with a staggering interest rate. 90% is more the norm.

Re: Are UK house prices sustainable? : Fri Dec 09, 2011 10:36 am  

ROBINSON wrote:

... Banks are not in the business of taking risks ...

Re: Are UK house prices sustainable? : Fri Dec 09, 2011 10:59 am  

ROBINSON wrote:

No. Between 5-10% is sufficient.

There are two reasons for this - the obvious one is the ability to save up the deposit. If the buyer has no deposit, then you have no buyer. It's as simple as that.

The other is less obvious. Banks are not in the business of taking risks, and therefore want an effective cast iron guarantee that if they repossess your house, they can sell it on for more than they have lent you. Otherwise, they need to chase you for the balance, which they'll probably never get, and incurs costs.

A couple of years ago where falls were predicted to be about the 15% mark, then yes, banks are justified (in their own minds anyway) asking for a 20% deposit. The loss lies with you, not the bank, then.

However now, prices seem to be stabilising somewhat, and no matter what the scaremongers say, further falls of 15% are unlikely. The banks acknowledge this, because there are 95% LTV mortgages on the market, albeit with a staggering interest rate. 90% is more the norm.

Not that long ago, it was fairly common for a building society to ask the borrower to pay a one-off premium for insurance against a price drop (in addition to the deposit).
Also, the deposit (which was commonly saved-up in a building society account) demonstrated to the BS that the borrower had the discipline and the income to repay the mortgage if and when granted.

I don't know whether that one-off premium still happens but I doubt it, I guess the premium would be too high these days.
On the deposits, I reckon you're right that the reasons for the higher deposits currently being demanded are the banks and BSs way of passing the risk of price drops back to the borrower.
Hence we can see their opinion (about likely price-drop-risk) in the level of deposit they require.
Whilst this shows caution, it doesn't mean they are guessing right ... they don't have a great track record when you remember they weren't very careful about handling the gilded turds of US-sub-prime packages.

Re: Are UK house prices sustainable? : Fri Dec 09, 2011 11:05 am  

El Barbudo wrote:

... Shame that they weren't as careful about handling the gilded turds of US-sub-prime packages.

RBS: 'Oh no, we don't have any of those toxic debts.

'Ooops. When we bought that there ABN Amro, we didn't check how many toxic debts came with it'.

Re: Are UK house prices sustainable? : Fri Dec 09, 2011 11:20 am  

Mintball wrote:

:lol:

What's so funny about that?

I should have said, to be fair, the RETAIL banking side of our banks are not in the business of taking risks.

Re: Are UK house prices sustainable? : Fri Dec 09, 2011 11:22 am  

El Barbudo wrote:

Not that long ago, it was fairly common for a building society to ask the borrower to pay a one-off premium for insurance against a price drop (in addition to the deposit).
Also, the deposit (which was commonly saved-up in a building society account) demonstrated to the BS that the borrower had the discipline and the income to repay the mortgage if and when granted.

I don't know whether that one-off premium still happens but I doubt it, I guess the premium would be too high these days.
On the deposits, I reckon you're right that the reasons for the higher deposits currently being demanded are the banks and BSs way of passing the risk of price drops back to the borrower.
Hence we can see their opinion (about likely price-drop-risk) in the level of deposit they require.
Whilst this shows caution, it doesn't mean they are guessing right ... they don't have a great track record when you remember they weren't very careful about handling the gilded turds of US-sub-prime packages.

That's right, they were called MIG (Mortgage Indemnity Guarantee) premiums, I think. I didn't mention it because, like you, I'm not sure if they still exist. By that, I mean I'm not sure if they were withdrawn, or they stopped selling them because of rapidly inflating prices.

Re: Are UK house prices sustainable? : Fri Dec 09, 2011 11:24 am  

Mintball wrote:

RBS: 'Oh no, we don't have any of those toxic debts.

'Ooops. When we bought that there ABN Amro, we didn't check how many toxic debts came with it'.

Fred the Shred, in foreword to RBS’s 2006 annual report wrote:

"Sound control of risk is fundamental to the Group’s business... Central to this is our long-standing aversion to sub-prime lending, wherever we do business.”

Re: Are UK house prices sustainable? : Fri Dec 09, 2011 11:27 am  

ROBINSON wrote:

What's so funny about that?

I should have said, to be fair, the RETAIL banking side of our banks are not in the business of taking risks.

Funny in a dark and ironic sort of way, since it's risky behaviour that has created the whole sorry financial crisis in the first place.

Re: Are UK house prices sustainable? : Fri Dec 09, 2011 11:30 am  

Mintball wrote:

Funny in a dark and ironic sort of way, since it's risky behaviour that has created the whole sorry financial crisis in the first place.

Sorry, I'll start again because I wasn't clear.

What I meant to say was that the retail side of banks, since the crash, are not in the business of taking risks.

Re: Are UK house prices sustainable? : Fri Dec 09, 2011 11:48 am  

Mintball wrote:

Funny in a dark and ironic sort of way, since it's risky behaviour that has created the whole sorry financial crisis in the first place.

Indeed, and risky in the sense that it was far more risky to the investor than to the pinstriped shite-monger who was notching up incredible bonuses at no risk to himself.

A couple of the basic tenets of the perfect market are a) That full information is available and b) That self-interest will prevail in prevention of risk.

Neither was in evidence.

Economics, as she is spoke, is in tatters.