Bank of England advises that mortgages underwritten at 4.5 x

and above are high risk mortgages . I wonder how they came to that granular and arbitrary position, given they were unlikely to have the benefit of the details of the applicant or the property , etc .

also the 3.5 multiple has been in existence for what 50 years plus ?

Canny bullsht from them. They know they can't put interest rates up(!!!) to curb inflation so they will try to knock it on the head by killing the housing market instead.

When asset values are unclear, all lending analysis focuses on multiples of income rather than loan to value.

A degree of common sense.  As a man who's had a couple of mortgages I could never understand how any could afford to service a debt of four and a half times their earnings and pay all the usual outgoings of life.  I'm struggling at the moment with simply three times earnings although it would be easier if I was part of a couple as that would reduce my outgoings to some extent as many of them would remain the same but effectively be shared.

They presumably came up with this in the same way the medics come up with the alcohol limits.

I don't think multiples of current earnings are a particularly good measure of risk with a mortgage tbh, because the primary risk is that the income disappears, or changes massively. But the entire mortgage market is run by complete simpletons, for complete simpletons tbh. If it weren't, no high street bank would ever attract any mortgage business, ever.

Really ? I've been paying a joint mortgage on my own that is 5.5x both our salaries and it hasn't ever been much of a struggle

which just shows what a stupid measure of suitability it is.

The right approach is to consider loan to value AND borrower's means based on the cost of the loan, their income and a true analysis of their regular expenditure (thus net available cash to service the cost of the borrowing).  Anything less detailed than that is missing an important perspective, like trying to measure volume by limiting yourself to an assessment of height.

Guess it depends to some extent on the nature of the property and your outgoings but I currently have nothing left for any kind of spending on myself each month.  I burn 30% of my net pay every month just on insurance, council tax and electricity.

"The right approach is to consider loan to value AND borrower's means based on the cost of the loan, their income and a true analysis of their regular expenditure"

this is exactly what you have to show when you apply for a mortgage now 

Interest rate rises must be imminent.  Should I pay off the max I can on my mortgage this year?  Any other age advice from the Rofferati? 

"I burn 30% of my net pay every month just on insurance, council tax and electricity."

Maybe you shouldn't have built such a big house for one person then 

🎻 

Yes, it is. So the news that the BoE / PRA are classifying high risk as being something related to multiples of income just shows what a lot of wank is in play. 

I’m still at a loss why it’s not done on affordability. I have friends who pay more in rent than an equivalent mortgage. But the computer says to borrow at the same level will result in a 5 times mortgage or whatever. Absolute madness .

@ sails you don’t think a say MC NQ could service a 500k mortgage, with the low interest rate environment that exists 

They claimed to have done that with us Mutters, on the basis of the post GFC new affordability based lending criteria. We were limited by how unstuck we would have come if interest rates went up 6%. 

Assuming you're still in the fixed term I don't really see the point of paying off more of your mortage. 

Invest the money now and use it to reduce your re-mortgage amount at the end of the fixed term. 

What is the effect of a mortgage being deemed high risk?

Does it prevent high street lenders from lending or just mean they need to carry out a more in-depth risk assessment?

CC I think it means very high level and in depth risk assessment. High street banks are a waste of time . I have a few friends and family members going through the process and it’s death by a thousand cuts . These are vanilla borrowers, borrowing well within their means . Getting a mortgage these days seems mostly hassle and hardwork beyond belief .

CL I don’t think any high street bank lends more than 4 times …

Assuming you're still in the fixed term I don't really see the point of paying off more of your mortage. 

Invest the money now and use it to reduce your re-mortgage amount at the end of the fixed term. 

Yeah, you're probably right, think I have a few more years on the fixed term.  Guess I should check that though. 

This has been the case since 2017. It just means there's a cap on the volume of mortgages it can lend to these people. Even then it is 15% of their book so hardly a massive constraint. On top of this there was the general switch to affordability post-GFC which means it is about affordability. If you want to see this in action just go to a "for intermediaries" website.

The reason your friends can't borrow ebitda is because the models must apply an interest rise stress test of at least 3%,

which means at current rates you are talking about payments increasing by 3 times. 

giving fair weather warning that those above that ratio are going to feel pain in the coming months

Interesting banana man . But you can fix fir 10 years at say 1.5 or so , so it ought not come into play ? Also these are people putting 20-30-% down , so a decent chunk. Not the 5% chancers 

Did the banks actually lose loads of money following the GFC . Ie more than they modelled ?

certainly in my part of south west London there was not suddenly a huge glut of cheap repos on the market, and prices remained exactly the same . I can’t speak for places like Huddersfield or Skelmersdale 

BoE already warned this morning rates will probably have to rise later in year to combat inflation. As mentioned above it’s to flag some mortgage owners are in for some pain. 

I have had a few mortgages and agree with sails never gone above 3x salary. The years of super low interest rates are coming to an end some people are in for a big shock.

But such rate rises that maybe coming like quarter of a point . There won’t be huge leaps 

It's such an idiot response. Supply-chain and commodity price inflation are not a function UK monetary policy. It will do nothing but help to crater growth. 

This + the noises Rishi is making about raising taxes and curbing spending are making it clear that the UK establishment learned nothing from the disaster of austerity. 

CL I don’t think any high street bank lends more than 4 times …
 

You think wrong. 

Linda that's why I'm keen to off the parents and move to something more sensible but I can enjoy the luxury for a few years in the meantime.  Thought I was making progress but the old man has rallied again in recent months.

Ebit that depends on what that magic circle newly qualified is earning and their other obligations.  If they're paying down student loans and also a loan to cover the LPC then no I suspect they can't afford a £500k mortgage.  If they have little existing debt and are buying a one bed flat in central London without crazy service charges then they probably can.

ebitda the test is irrespective of the mortgage fixing. It's aimed at overall ability to withstand increases.

Agreed Pancakes. Signs are money supply is dropping back to normality, and manufacturers will eventually have enough stock to meet demand. Hopefully this is just Bailey learning from Carney and talking a good game rather than wanting to prove he has what it takes like the world's worst GFC central bankers King and Trichet.  

 

Wot coffers said. The public and to an extent the lenders will only understand a simple message. And that message is don’t overgear yourselves and expect to be ok you stupid **nts

are they looking at risk to customer or risk to lender. it sounds like they are looking at risk to customer - rather than risk of bank as otherwise the LTV needs to be factored in - as there is little to zero risk in a bank losing money if they have lent at a ratio of say 40% loan to value than compare to say 90% ltv.

At 90% ltv the risk to the lender is presumably very high regardless of the earnings ratio, becuase it will be a single life event like death or losing a job that will lead to default - with a swing in values of say -10% leaving the bank out of pocket. 

almost seems that its an attempt at nannying. 

My LTV is a little over 20% but they still crawled over my finances and commented on the fact that my affordability calculations worked out that I had just enough every month to pay the expected mortgage payments.  I assume lots of people massage their outgoings to reach the point where the spreadsheet shows they can just cover the mortgage payments.

People like premier bank managers so they dont miss out on commissions

When I had to provide various brokers/underwriters with details of expenditure and debt, they really couldn't get their heads around the fact I had no credit cards,  HP, loans,, overdrafts or student debt, and hadn't for over ten years.

You cannot win "too" much debt you are servicing quite properly , makes you profligate and the affordability metric , tanks. Too little or none then your affordibility rockets, but "mmm, you are not used to servicing debt!" Christ.

"almost seems that its an attempt at nannying. "

Or they are trying to curb inflation without using the only two levers they actually have which will kill the economy - QE (which they are still pumping out like nobody's business) and interest rates. 

When you earn quite a lot you can afford a high multiple because you might have the same spending as someone on £50k so income above that could even after tax be 100% available to pay more mortgage.

CL which lenders ?

HSBC, Barclays, Nationwide, Halifax…

Of course they aren’t going to want to lend to everyone at that multiple which is may be where you have run into difficulties. 

i would have thought an MC NQ would do help to buy on a 600k flat, put 100k in depo, get the 40% from government which is 240k, then you're only paying off a mortgage of 260k, then pay off equity loan which has low interest which starts after 5 years

4.5 isn't risky because house prices rise higher than anything 

serious point of order: i think it's probably prudent to buy in the UK first before going expat

doing the buy to let thing is a chore, and it's probably worth taking advantage of whatever schemes you can

buy to let mortgages from uae are easy to get for sure, but you need to do it through specialist brokers or hsbc expat

rates aren't always great

Not sure it's feasible to save up £50k over the course of a training contract but I guess there's BOMAD for some.

TopDawg I can't believe the UAE is any different from other pat destinations regarding the availability of BTL gidges. If that's right then you are well off the pace in what you say. I thought you knew the dolla game. Maybe you're more verdant than I had assumed. 

SummerSails18 Oct 21 14:17 ReplyReport

Guess it depends to some extent on the nature of the property and your outgoings but I currently have nothing left for any kind of spending on myself each month.  I burn 30% of my net pay every month just on insurance, council tax and electricity.

wtaf r u on about

either ur chatting shit, or ur running a cannabis farm

Lydia18 Oct 21 18:20 ReplyReport

When you earn quite a lot you can afford a high multiple because you might have the same spending as someone on £50k so income above that could even after tax be 100% available to pay more mortgage.

agreed - the funny thing is it actually gets harder to borrow and there r fewer rates for higher earners, so if u want 2 release equity it can be harder than expected 

Mortgage lending is entirely based around stressed affordability now. Yes multiples are a loose proxy for that. If you need a mortgage, just find the rate you like then google [lender] for intermediaries. You can then see how much they will lend you. 

I just bought a house on a 4.5x mortgage and 2 mortgage payments in.  Overpaid on the first month by £200 more than the mortgage payment then the second overpayment was about 80% of the mortgage payment.  This is on as 25 year mortgage with 5 years fixed so I'm on the highest monthly payment I could get.  I wouldn't say I'm that smart with money/stingy, 4.5x should not be seen as high risk. Mind you, after almost a decade of being a part of generation rent paying off someone else's mortgage and then having to save for a deposit I suppose the bank got comfortable with my statements as to risk, hopefully they will continue to do that, particularly for first time buyers, than listen to this crap.

I just bought a house on a 4.5x mortgage
 

With a high street lender?

This is on as 25 year mortgage with 5 years fixed so I'm on the highest monthly payment I could get.

To get the highest monthly payment (other than selecting the highest interest rate!) wouldn’t you reduce the term from the standard 25 years?

Yeah was a high street lender. As to the term I can’t remember, it either wasn’t offered or I wasn’t up for the amount of the payments.

Our new mortgage is about 2.8 x our joint income @ about 1.3% and the premiums seem a hell of a lot to me. 

BTL mortgages are easy to get from UAE, easily available.

The mortgages available to expats though typically are more expensive - higher fees or interest or both

I am an expat landlord - it's not easy or passive to manage, and not being in London, you need someone on the ground to help out. Hence the neighbour thread after he came in a few times to close a window when it was raining - which caused the tenants to be silly about leaving.

I terms of saving up £50k during a TC in the past and presumably now most people buy with their spouse/partner so need to save up half of that eg £25k or £12,500 a year for that £50k between the couple.

 

£40k a year is about £30k a year after tax but ignoring 9% student loan on about £13k of that so our mythical couple of trainees have £60k net a year, perhaps pay rent of  £15,600 so could probably save £12,500 a year each and have £50k when they qualify if in London.

You wont be buying with a partner at that age if you have any sense, that's just council.

FTB above shouldn't be doing a 5 year fix unless his deposit was huge. Really dumb idea as you wont benefit from a better LTV for 5 years and be paying more in the meantime.

 

 

Na, one NQ at an MC firm should be able to put together 100k. Looking and moving takes a while. Could be a year until moving date. 

I forget how high tax is in the UK, but there are juniors here with multiple buy to lets in London, albeit in the 300-400k range

Most trainees are older now anyway - if by the time you're 27 odd and you haven't saved 100k+, something went terribly bloody wrong.

Dawg I say again you are well behind the curve. You can get the same BTL rates from HSBC UK as any UK resident unless there special rule about Dubai blinghards I don't know about. You're welcome. Nor do you need someone on the ground since you mention it. 

Not sure about that unless I’m missing something, the rate of interest I’m on now is less than the existing standard variable rate and I’d have thought rates would increase in five years surely. Also in a position to do regular overpayments anyway which reduces the balance directly. 

I use HSBC now, but they didn't use to offer it like they do now, so the BTLs were done through specialist brokers initially

Just the agent fees and people taking care of the property is a pain

Only mortgage prisoners are on the SVR. 2 year float or fix would normally be cheaper than a 5 and allows you to reprice more quickly for a better rate still once your equity improves. You only fix the bitch for a long time if your LTV is as good as it needs to be to get the lowest price.

Dawg you have committed a foot fault. HSBC gidge rates have always been on their main website and available to all. Only fools deal with HSBC Expat. You may noticed their existence is barely acknowledged by HQ.

Fair enough, will keep in mind 5 years down the line. Just happy not to be renting or living in a flat anymore tbh

No, I went through specialist brokers back in the day; I have an HSBC expat account, but haven't remortgaged with them; they're all interest only, and I'm not getting better rates at this point

My point was that when you're junior - the hypothetical magic circle NQ - it's better to buy in the UK first before getting expensive BTLs with 25% depos. You'll struggle even as an NQ-1PQE to save 170k 25% depo + stamp for a 600k BTL, but won't for a help to buy / resi mortgage.

Else you can do what I've also done and buy 2 x c.200k gaffs in the same flat, and buy one for 400k and the other for £1 to avoid tax etc.

Also of course you have to tell the lender if you're changing from resi to BTL, but millions of people do not.

Specialist brokers are even more expensive. I do hope as well you avoided Skipton, who charge a minimum of 4.5% to any fool off his face after brunch. 

In future just call HSBC UK or apply online to get standard UK market rates. Fine to say unkle told you. 

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