Great news!
Banks appear to have learned the hard way* that reckless lending destroys shareholder value. As well as saddling homebuyers with astronomical debts secured on a depreciating asset. And pushing us into recession.
According to The Torygraph:
The Council of Mortgage Lenders (CML) said that the average first-time buyer needed to raise a 15pc deposit [and] first-time buyers borrowed an average of 3.24 times their income.
So why is that article headed "First-time buyers suffer as deposits climb"?
FTBs are really only competing against other FTBs; so if you take away these financial weapons of mass destruction, they'll stop killing each other. What's not to like?
* Of course, banks will conveniently have forgotten this in ten years or so, and the credit/property price bubble madness will start all over again ...
Thinking about it, I did a pretty chart a while back, which shows that the long term average loan-to-income is about 2.25, not 3.24. So, as GS points out in the comments, there's a bit further to go ...
Nemesis casts her cold eye on the Great Leap Backwards
37 minutes ago
4 comments:
3.24 x salary is still way above what was considered to be a conservative loan 30 years ago. SO still some way to go then.
My friend Mr Simpleton beat me to it. I'm too lazy to look up whether the CML meant 3.24 x joint income for a couple, if so that is way too much. Twice main income and half second income, absolute max.
15% deposit sounds pretty fair while prices are still in bubble territory but I would prefer to see at least 20%. A goodly deposit serves three purposes: (i) shows borrowers to be responsible, (ii) reduces amount borrowed and, therefore, cost of loan and (iii) encourages a ethos of saving rather than spending on tick. It's good for borrowers and good business practice for lenders.
Of course it requires a substantial further fall in property prices before these sums become affordable for many FTBs. I have commented about this before on John Redwood's blog (as William B) on my modest blog and, I believe, here. We must get the air out of the bubble and keep it out by sound lending practice.
There will be victims because negative equity can blight people for many years, but the alternative is either a return to bad lending or two generations priced out of property ownership.
With any luck those who have to save a deposit will also press for lower income tax so that financial responsibility spreads from lenders to potential borrowers to government.
I know ... oink oink, flap, flap. But you can't stop a fat man dreaming.
«two generations priced out of property ownership»
Who precisely is going to vote against that? first time buyers are either:
* The native middle class. Well, 70% of them are owners, mostly middle aged or retired, and their children stand to inherit, and thanks to the baby bust many of those heir will inherit more than one property.
* The immigrant poor. Well, high house prices are a splendid way for native owners to make a lot of money out of immigrants, either through high rents or via a sale.
* The native poor. Well, nobody seems to care about losers, and in any case there they are outnumbered 2-3 to 1 by owners.
High house prices are in effect a way to transfer wealth from those who don't have property or will not inherit property to those who have or will inherit property.
The latter category is much more numerous, and they vote their wallet (see inheritance tax story).
As keeping house prices high is a way to fund the retirement of older richer people it is a favourite of any government, not just most voters.
House prices support is an inarrestable political cause, and the few and irrelevant FTBs will be losers.
B, yes, valid points well made.
But - this is not a straight choice between a) keeping house prices high and stable and b) keeping house prices low and stable - that's a straight right wing vs. left wing argument and I don't do politics.
The choice is between a) mad fluctuations from boom to bust and b) keeping house prices low and stable. There are more losers than winners from choice a), so b) must be the way to go.
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