Millions of home owners face restricted lending
More than 5m home owners will become “mortgage prisoners” or be forced to move to a cheaper area if new mortgage rules are introduced, lenders have warned.
By Myra Butterworth, Personal Finance Correspondent
Published: 4:37PM GMT 04 Nov 2010
95 Comments
The Council of Mortgage Lenders unveiled new figures yesterday suggesting tough new lending restrictions will lead to 2.2 million existing home owners being refused a new mortgage. These so-called “mortgage prisoners” would be trapped in their homes, unable to remortgage or move.
A further 3.4 million home owners would be able to obtain a new mortgage, but they would be offered less than the amount they would have been able to borrow previously, forcing them to move to a cheaper property.
The strict new rules on how much a person can borrow are expected to be introduced next year by the City regulator, the Financial Services Authority. They evolved after banks were accused of giving large loans to borrowers who could not afford them.
Under then FSA’s proposals, the amount a person could borrow would be restricted by taking into account future rises in interest rates and whether they could afford their monthly payments based on a repayment mortgage rather than an interest-only deal.
But the CML said the FSA had “got it wrong” as the rules would actually end up hurting more borrowers than they helped.
Speaking in London at the publication of the research, Michael Coogan, the director general of the CML, described the new rules as “an overreaction to past problems”.
He said: “The FSA is not prepared to change its basic approach on income verification and affordability. This will have market consequences – we think they are intended, and they would seriously undermine the mortgage market in the future.”
Research released by the CML earlier this week showed 45 per cent of people taking out a mortgage this year would have been hit by the FSA’s new rules if they were already in force.
It comes as economists warned that housing market data had already become “increasingly negative”.
Paul Diggle, a property economist at Capital Economics said: “The stock of unsold properties on the market expanded once again and mortgage market activity remains extremely depressed.
“Most of the house price indices are pointing to a weakening house price trend. With the economic recovery set to lose momentum, we expect housing market activity and house prices to fall further next year.”
Falling house prices raise the prospect of increasing numbers of home owners falling into negative equity, where their mortgage is greater than the value of their home.
A separate report by ratings agency Standard & Poor’s disclosed that more than one in 10 mortgages in the North West were in negative equity at the end of June.
The FSA said the new rules were aimed at replacing risky lending and unaffordable borrowing with “common sense standards”.
It said home owners were benefiting from historically low interest rates, and that 46 per cent of households had little or no money left after their mortgage and other bills were deducted from their income.
A spokesman for the FSA said: “Even a modest rise in interest rates could lead to a significant increase in the number of families suffering financial distress. This is why it is imperative that we ensure lenders act responsibly and do not return to irresponsible practices, in order to protect consumers from taking on mortgages they cannot afford and potentially losing their homes.”
http://www.telegraph.co.uk/finance/personalfinance/8110719/Millions-of-home-owners-face-restricted-lending.html
Showing posts with label affordability. Show all posts
Showing posts with label affordability. Show all posts
Saturday, 6 November 2010
Monday, 24 May 2010
The housing affordability flaw
The affordability flaw
MARIKA DOBBIN
May 24, 2010
This time last year, houses were at their most affordable in eight years, but things are different now: affordability in Melbourne has crashed.
A SHEET of paper posted outside a shop in Victoria Street, Abbotsford, says a lot about the housing market.
''I buy houses and pay $20,000 more,'' it reads.
The words, scrawled and underlined in black texta, speak to the edge of panic about rising prices that has pushed buyers to extremes in the past year.
Affordability in Melbourne's housing market has crashed in spectacular fashion, according to the HIA-CBA First Home Buyer Affordability Report last week.
Although in the first quarter of 2009, houses were at their most affordable in eight years, things are very different this time around.
Melbourne led a national deterioration in affordability in the March quarter, with a 16 per cent decline in just three months and a 33 per cent drop overall since last year's purple patch for buyers. The index is calculated by taking into account house prices, interest rates and factors such as the removal of the first home buyers boost.
Senior economist Ben Phillips said further interest rate rises in April and May would probably mean affordability would plummet further in the June quarter, to match the record lows seen in 2007 when interest rates were above 9 per cent.
''Housing affordability will once again be a key issue in the mortgage-belt regions of Australia,'' he said.
''We are yet to see the required level of co-operation between all levels of government to deliver critical housing infrastructure.''
Making things worse for first home buyers is that most of Australia's lenders show no signs of easing strict criteria that have made it difficult to get a sizeable loan.
As prices have gone up, so have loan-to-value ratios.
The loan-to-value ratio refers to the amount of money borrowed for a property compared to what the property is worth. For example, if a property is valued at $300,000 and a buyer borrows $270,000, the ratio is 90 per cent.
Adjustments to maximum ratios are one of the main devices financial institutions use to increase or decrease the amount they lend, alongside interest rates and fees.
In May, there were 31 less loans available of, or above, a 95 per cent loan-to-value ratio than in February, according to financial comparison website RateCity.
But it is not just in the mortgage belt that the high expense of housing is making life difficult. The ripples extend far and wide, even to those outside the market.
Victorian Housing Minister Richard Wynne last week was called before a public accounts and estimates committee to explain why the wait-list for public housing blew out to almost 40,000 people in March, having increased by 1013 in just three months.
There are now almost as many people waiting for government accommodation as there were in 1999, at the end of the Kennett government era.
Mr Wynne told the hearing that for the past few years the private rental market was the tightest the state had seen.
''And whilst the market has eased a little bit … there's a direct correlation between vacancies in the private rental market and the public housing waiting list,'' he said.
Mr Wynne said government interventions, including the expected delivery of 3800 new dwellings under federal social housing and economic stimulus money, and thousands more affordable rental properties thanks to the National Rental Affordability Scheme, would make a difference to supply.
Whether or not those goals are realised, conditions for those at the margins do not appear likely to improve any time soon.
However, it is not all bad news.
There are signs that Melbourne's property market may become a friendlier place for some buyers as winter approaches.
Auction clearance rates before Anzac Day were as high as 87 per cent, but have tapered off slightly since then. Last weekend it was 75 per cent, the lowest since the opening auction weekend of 2009 on March 21, according to the Real Estate Institute of Victoria.
Sales results have been the most patchy at the very top, a price segment that set the market on fire with a series of record-breaking results late last year.
Of course, there is no point mentioning clearance rates without taking into account the level of stock, and May is set to become the busiest auction month on record outside of the traditional spring selling season.
But even when the extra listings are taken into account, it seems clear that higher interest rates have finally tempered demand and will eventually slow price growth in other market sectors.
REIV communications manager Robert Larocca says the auction market at the moment has shades of autumn 2008, when vendors' confidence was still soaring from the 2007 price peak and listings were unseasonably high.
''Interest rates started to escalate and clearance rates dropped to the mid-60s,'' he says. ''This autumn, many of those same factors are in play but we haven't seen quite the same reaction. The market certainly has not crashed.''
Although affordability is yet to improve, it seems the market might finally be shifting back towards buyers, and sellers' reserves are not as likely to be exceeded as they were prior to Anzac Day.
In that context, a sign on the street offering $20,000 more than market value for houses appears even more out of place.
For the record, this columnist called the number on Friday, and was told that ''Sue'' would phone back. She hasn't yet.
Source: The Age
http://www.watoday.com.au/business/property/the-affordability-flaw-20100523-w41c.html
MARIKA DOBBIN
May 24, 2010
This time last year, houses were at their most affordable in eight years, but things are different now: affordability in Melbourne has crashed.
A SHEET of paper posted outside a shop in Victoria Street, Abbotsford, says a lot about the housing market.
''I buy houses and pay $20,000 more,'' it reads.
The words, scrawled and underlined in black texta, speak to the edge of panic about rising prices that has pushed buyers to extremes in the past year.
Affordability in Melbourne's housing market has crashed in spectacular fashion, according to the HIA-CBA First Home Buyer Affordability Report last week.
Although in the first quarter of 2009, houses were at their most affordable in eight years, things are very different this time around.
Melbourne led a national deterioration in affordability in the March quarter, with a 16 per cent decline in just three months and a 33 per cent drop overall since last year's purple patch for buyers. The index is calculated by taking into account house prices, interest rates and factors such as the removal of the first home buyers boost.
Senior economist Ben Phillips said further interest rate rises in April and May would probably mean affordability would plummet further in the June quarter, to match the record lows seen in 2007 when interest rates were above 9 per cent.
''Housing affordability will once again be a key issue in the mortgage-belt regions of Australia,'' he said.
''We are yet to see the required level of co-operation between all levels of government to deliver critical housing infrastructure.''
Making things worse for first home buyers is that most of Australia's lenders show no signs of easing strict criteria that have made it difficult to get a sizeable loan.
As prices have gone up, so have loan-to-value ratios.
The loan-to-value ratio refers to the amount of money borrowed for a property compared to what the property is worth. For example, if a property is valued at $300,000 and a buyer borrows $270,000, the ratio is 90 per cent.
Adjustments to maximum ratios are one of the main devices financial institutions use to increase or decrease the amount they lend, alongside interest rates and fees.
In May, there were 31 less loans available of, or above, a 95 per cent loan-to-value ratio than in February, according to financial comparison website RateCity.
But it is not just in the mortgage belt that the high expense of housing is making life difficult. The ripples extend far and wide, even to those outside the market.
Victorian Housing Minister Richard Wynne last week was called before a public accounts and estimates committee to explain why the wait-list for public housing blew out to almost 40,000 people in March, having increased by 1013 in just three months.
There are now almost as many people waiting for government accommodation as there were in 1999, at the end of the Kennett government era.
Mr Wynne told the hearing that for the past few years the private rental market was the tightest the state had seen.
''And whilst the market has eased a little bit … there's a direct correlation between vacancies in the private rental market and the public housing waiting list,'' he said.
Mr Wynne said government interventions, including the expected delivery of 3800 new dwellings under federal social housing and economic stimulus money, and thousands more affordable rental properties thanks to the National Rental Affordability Scheme, would make a difference to supply.
Whether or not those goals are realised, conditions for those at the margins do not appear likely to improve any time soon.
However, it is not all bad news.
There are signs that Melbourne's property market may become a friendlier place for some buyers as winter approaches.
Auction clearance rates before Anzac Day were as high as 87 per cent, but have tapered off slightly since then. Last weekend it was 75 per cent, the lowest since the opening auction weekend of 2009 on March 21, according to the Real Estate Institute of Victoria.
Sales results have been the most patchy at the very top, a price segment that set the market on fire with a series of record-breaking results late last year.
Of course, there is no point mentioning clearance rates without taking into account the level of stock, and May is set to become the busiest auction month on record outside of the traditional spring selling season.
But even when the extra listings are taken into account, it seems clear that higher interest rates have finally tempered demand and will eventually slow price growth in other market sectors.
REIV communications manager Robert Larocca says the auction market at the moment has shades of autumn 2008, when vendors' confidence was still soaring from the 2007 price peak and listings were unseasonably high.
''Interest rates started to escalate and clearance rates dropped to the mid-60s,'' he says. ''This autumn, many of those same factors are in play but we haven't seen quite the same reaction. The market certainly has not crashed.''
Although affordability is yet to improve, it seems the market might finally be shifting back towards buyers, and sellers' reserves are not as likely to be exceeded as they were prior to Anzac Day.
In that context, a sign on the street offering $20,000 more than market value for houses appears even more out of place.
For the record, this columnist called the number on Friday, and was told that ''Sue'' would phone back. She hasn't yet.
Source: The Age
http://www.watoday.com.au/business/property/the-affordability-flaw-20100523-w41c.html
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