Northern Rock is to offer 90% home loans – but there is a big question mark as to whether first-time buyers would actually be able to afford the mortgage.
Critics such as the Daily Mail inevitably criticised the 90% deal as “a return to the risky lending that saw it implode in 2007”.
The nationalised bank will roll out mortgages of up to £450,000 in return for deposits of 10%. The previous minimum deposit required was 15%.
The Mail went on: “The decision comes three years after a humiliating bail-out by taxpayers that was a defining episode of the credit crunch and global financial meltdown.”
In 2007, Northern Rock received £3bn in taxpayers’ cash.
It had previously offered a mortgage called Together that let customers borrow 125% of the value of their home.
But Northern Rock has insisted its new loan will bear little comparison with Together, and says it will be extremely careful about which home buyers would be allowed to take out one of its new 90% LTV products.
Ron Sandler, executive chairman of Northern Rock, said: “The first-time buyer market is the one that needs most assistance. We see this as a very responsible form of lending.”
He added that customers will be “appropriately screened for risk and affordability”.
Northern Rock’s new mortgages are fee-free but they are certainly not cheap, and they are aimed at making profits for the lender as it tries to gear up for a sale, possibly later this year.
The deals will cost borrowers considerably more than 0.5% base rate and will fuel arguments that lenders have apparently 'good' deals on offer, but are actually so expensive, that borrowers would not be able to fund monthly payments.
The new Northern Rock range includes a five-year fix at 6.59%, a three-year fix at 6.49% and a two-year fixed rate at 5.99%.
Melanie Bien, director of mortgage brokers Private Finance, said: “Borrowers should not assume it [the new 90% mortgage] will mean rock-bottom rates.”
A first-time buyer taking out a £150,000 loan with a five-year fix would be paying just over £1,000 a month.
Ray Boulger, senior technical manager at mortgage broker John Charcol, said: “I would not regard the new Northern Rock mortgages as reckless at all.”
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Comments
Hmmm... so it appears I owe 'harry' an apology.
I find it ironic that non-qualified and non-capable people can possibly be allowed to give advice on such matters - that was certainly not the case when I was 'on the tools'. It is a pity that relaxation of standards allows this. Maybe it is fortunate, however, that those who DO know what they are talking about do not have such blinkered views as 'harry', 'Billy' and the others they care to ask to post in support.
Anyway, harry - on a technicality I apologise. Doesn't mean I agree with you - you should still keep schtumm about something you are ill-equipped to speak upon.
The HPC website will hail you as a God, however... ;0)
As an aside Harry, you're absolutely correct. You must be registered in order to charge for financial advice however there is nothing stopping you from giving advice via the press without being registered.
If I recall, Stuart Law of Assetz isn't registered and yet his 'advice' gets plastered everywhere....
Sibley's...: Aha! - swords at dawn again, mon brave.
You attack - "Thanks PeeBee, although, did I mention I was married?
Am I to assume, then, that you cede this point?"
I counter - using your own weapon to my advantage:
"Unfortunately, the wife was about to give birth so we postponed that idea."
Monsieur, ne vous admettez? Vous tombez sur votre propre épée... ;0)
Thanks PeeBee, although, did I mention I was married?
Am I to assume, then, that you cede this point?
Sibleys... : Look, mate - I like you. I'm trying to get you a decent pad at a decent price. Why don't you, Country Lass, wardy et al head over to the "Only 40% of homes on market will sell" story - you'll see what I mean.
And I ain't even charging you a HomeFinders Fee...
Believe me - the pleasure is ALL MINE!!! ;0)
Pee bee we live in a free speech country. Members of the public can give there opinions on tv, radio blogs etc. That is very different to people paying for financial advice. I would recheck the fsa rules.
Property values matter equally for remortgaging as to buying. So if you loose your 10% equity you are forced onto the SVR.
Harry: Stifle debate? I don't think so. I ENCOURAGE debate; FIND IT where it is absent. Have you noticed that others are disagreeing with you as well? Wanting to further the debate? Desperately hoping that you post something that is spinning in the same direction as the rest of the world, instead of simply drawing on opinion and presenting it as advice, such as:
"I would recommend buyers still raise more deposit."
"So if you need to buy now it is best to have a bigger deposit especially with interest rates set to rise to act as a cushion."
In response to your point "I recommend you exAmine the relevant fsa rules and who they are attributable too." - I draw your attention to this from the website InvestmentGuide.co.uk; "One achievement of the 1988 Act was to compile lists of people who are allowed to give financial or 'investment advice'. Only firms or people on these lists, apart from the media which is in most cases exempt, are allowed to give investment advice to the public."
Which FSA rules would you like to draw MY attention to?
Aha PeeBee; nice feint. Firstly, thanks for the belated congrats and equally, sorry to hear about your lads' plight.
Now, back to business...
1. To be honest, I would vigorously deny that anyone buys a home expecting it to devalue 'you can't go wrong with bricks 'n' mortar' or 'house prices only ever go up'. It's this mindset that enables people to rationalise 'okay, i've overstretched and paid 400k for this place but it'll be worth 450k in 5 years time'...
Suffice it to say, HPI and the belief in HPI has led us to where we are now. Arguably, wages and HP inflation would move in tandem. Although, i'm acutely aware i've now opened a new debate.
2. With regards to psychology, that's rather simple; my wife (and let's face it, women tend to be the driving force in house purchases) is of the same mindset. Therefore there is no burning desire to own now, now, now. She also believes that housing is over-priced so we're happy to pay some BTLers mortgage for the short term.
With regards to a 'bidding war' so be it; that is out of my control. Whenever I have bid on property (which I have over the previous years) if i'm informed by the EA they've received a higher offer I walk away. Simples.
Lastly, I was puzzled by this; can you elaborate?
"In order to join in, I honestly believe you need a change of mind-set."
With respect, and i'm guessing that you were born early/mid 60s, your experience of the housing market (when you first bought, say) bears no relevance to the experience that of most people who bought (or intend to buy) post 2000.
Thanks Ric; good things come to those who wait!
I fully agree on the Human Aspect comment PeeBee, even more so one the 'missus' comment. One of my friends is EXTREMELY whipped (and I say that as a friend of his wife's too!) She saw the road she wanted, near a 'prestigious turning' and decided to pay a stupid amount of money for a property with a drive a mountain-goat would struggle to climb. Tried to talk her out of it (when they bought it about 3 years ago) but what do I know, right?
Now her husband is struggling for work and they need to remortgage, but the place keeps getting down-valued.
Sibleys: En garde, mon brave! PeeBee's on the offence, foil at the ready... ;0)
1. "Last time I checked, cars weren't subject to speculation or a basic human right?" OOH - you're opening a MASSIVE can of slimy garden critters there, matey! AoS will be on you like a tonne of bricks about the basic human rights issue... MY point, though, being simple. Although you are not one of them, many thousands of would-be homebuyers look at a property as a potential loss-making possession - but go out and buy a pretty, shiny gas-guzzler which loses THOUSANDS the day they drive it off the forecourt, and CONTINUES to depreciate on their rental home driveway until they sell it on and start the cycle again. Somehow, THAT is acceptable! Surely a roof over your head is more important; more necessary, than a Beemer, VeeDub or whatever keyfob you fancy waving around? It would be fascinating to actually work out what Mr/Mrs/Ms Average 'loses' over a 25-year period on cars and finance, as a direct comparison against property. HENRY - you up to it?? ;0)
2. Firstly, congratulations on your 2009 arrival. A bit late, granted - but sincere nevertheless. How many you got? I've got two fine sons; both now married - and BOTH unable to buy homes due to lack of affordability (unless they moved to an undesirable area...) so 'stuck' in rented. You COULD argue self-imposed. I would. Thank you for your frank and honest answer - in order to understand the argument it is better to understand a little about the man. Now we both have shown some if not all cards. Your argument as WHY you are reluctant to buy is as good as any. The HUMAN ASPECT, however, is missing - and this is what puzzles me immensely. If MY missus saw a house she wanted to buy - WE WOULD BE MOVING!! Right time:wrong time wouldn't have a look in - the decision would be cast in stone there and then!
IF you simply seek a roof over your head to own, then fair enough; a roof over your head you will get. But if you (she) wants THAT property in THAT street - how do you know that what you seek will happen - and mores to the point how do you know that you will not be the only one wanting to buy it and that you will not get involved in a bidding war? This mon ami, is the Housing Market - and thousands play it every month.
I FULLY appreciate (at least I think I do...) where you are coming from - but I sincerely hope you appreciate the reverse. Ain't any normal commodity you intend to buy; ain't often a thing done lightly - it's a LIFE-CHANGE. In order to join in, I honestly believe you need a change of mind-set.
Thank you for reading.
Hi SBC thanks for the response....
Human nature to worry about what you paid for something, When I book a holiday or change my car I still torture myself by looking what I could have purchased and for what price the day before I go on holiday or before I pick it the car up! Glutten for punishment!!!! So I agree a tendency to always think what you pay matters.
As for you saying you would by at £126,000 get out there, (if your not already doing so) and keep bidding, you may find a vendor who would be glad of your £126,000 and if it is a "good deal for you" and not for them, you are not forcing them to take it! Just offering them a chance to sell.....!
I do hope you find a property and I am sure when you do it will be the right one! (good luck with your search!)
Actually, second point Ric:
"But if you are not selling or remortgaging in 12 months does it matter what your house is worth?"
Not at all, but it matters a helluvah lot how much you paid for it.
Fair point Ric (number 2)
If I could get somewhere 10% off then I would buy. For instance, i'm looking at max £140k so I would definitely for 126k.
However, and this is a big however, most vendors don't need or can't take such a hit at the moment (bar distressed sales). Once IRs begin to rise; repossessions rise; and there's a clear downward trend only then - I feel - will vendors 'get real'.
@Harry......(Hi Harry)
You are right on the Gov pressure I reckon, they want lenders to help FTBs more and no surprise a majority Tax Payer owned BS such as the NR is the first to step forward! But still good on them!
However........
only a 101% LTV and upwards mortgage can truly be seen as "knowingly" putting someone in neg equity at that particular "Snap Shot in Time" ie the old 125% LTV mortgages that yes the NR offered....reckless without question! But anything from 100% downwards can not be blamed for Neg equity...prices falling cause that, so the buffer of lower LTV's is set and the gamble of no more than a 10% drop made by NR is fair I think! YOU DONT HAVE TO TAKE IT!
No lender or IFA can predict the prices, we tend to comment after a steady stream of results are published, thats why Q1 & 2 of 2007 had so many get it wrong, they were following TREND, at the minute UP DOWN UP DOWN trend no clear picture! so no-one dares actually be specific to a which way prices will go, best to air on the side of caution so down is best promoted!
Youre spot on with the Gov pressure and IFA ill advice but 100% plus mortgages will never return so only price fluctuations can only be truly be blamed for Neg Equity! although I too would say a 10% deposit is best WHEN POSSIBLE! and more if you can afford it!
Harry, they aren't knowingly selling a product to put people into negative equity. It is a possibility yes, the same as them winning the lottery the day after they move in is a possibility.
You can't say that this will or will not help the housing market recover, the same as I can't. You can however acknowledge the fact that this MAY be what is needed, as long as the buyers are sensible about what they purchase, and take advice from a proper FSA regulated advisor. I have.
@ SBC
Firstly thanks for the name correction....(thought you knew me from my Saturday night job! LOL)
anyway.....
(1) No way am I saying do not consider the wider implications of the economy! But I do feel your suggestion is a bit wait for the average price of zero as any higher comes with a risk! This mortgage is an OPTION for people who have weighed up the risks and do feel it is the right time and for people who only have a limited deposit but perhaps a healthy monthly income!
BUT VERY IMPORTANTLY.....My question to you SBC is
(2) Why dont you just offer 10% less on a house you like in an area you like and then you are not gambling on the economy as such you are simply putting your money where you mouth is by buying at 10% less than todays market Price! As your post suggests you just want 10% more to come off the market before you buy, you can potentially make that happen today with keen negotiations can you not?
If you did this and prices rise in the next 12 months, would you possibly thank me for this suggestion? If prices fall in the next 12 months then you have your deposit and price negotiated as a buffer! But if you are not selling or remortgaging in 12 months does it matter what your house is worth?
Hoping for 10% off is much more insane than making a purchase based on todays facts surely? If you want 10% off go get it.............
Harry: Do you understand that Negative Equity is only applicable when you come round to sell.
This new mortgage is a CHOICE and wont be for evryone, but it will be good for some.
If a person taking out that mortgage, stays for example 25 years and deicides to sell they wont be doing so at a loss will they.
As said before, the market will go up and down, no-one can fully predict what will happen in the coming years.
Pee bee please try not to stifle debate by making baseless threats. I recommend you exAmine the relevant fsa rules and who they are attributable too.
Knowingly selling a mortgage product that will put people into negative equity is not responsible and a return to bad lending. I think government pressure is behind this.
Ah PeeBee, my fencing partner; I always enjoy the rattling of sabres.
1. I don't drive (nor ever have). Although comparing cars with homes is a little disingenuous, no? Last time I checked, cars weren't subject to speculation or a basic human right?
2. I do intend to buy although it's a question of when. After getting married in 07 it was apparent there was something seriously wrong with UK property so held-off.
Then came 08 and was immediately vindicated. By Q1 2009 by IFA contacted me and said if you're going to buy, it better be soon as the market's turning again. Unfortunately, the wife was about to give birth so we postponed that idea.
2009-2010 saw the dead cat bounce and I figured it wasn't based on strong fundamentals and felt assured it would be short-lived. By Q3 2010 the indices began showing monthly -%, then quarterly -% and then - lo and behold - YoY -%. In short, I intend to buy but not anytime soon; perhaps Q4 2011 at the earliest. I guess we'll have a better idea as to where we are going by then; i'm hoping for another 10% off minimum to bring us somewhere resembling sane levels.
Sibleys...: Take this in the spirit it is intended. I don't usually bite at you, so I hope you get the gist of where I am coming from...
You say "...ultimately a home is for living in and not an investment vehicle however i'm referring to opportunity cost. If I bought in 06/07 i'd be mighty hacked-off about the amount of compound interest i'd be paying back on top of the principal than if i'd waited a year or two." Brings forth a multitude of questions - but I'll stick to only a couple (although they need some multiple answers...).
1. Do you own a car? Did you buy it new or second-hand - and how long have you owned it? How much is it worth today? What percentage of the original price have you lost on it since you owned it? Did you take out finance? How much interest have you agreed to pay on the loss you have already made? Obviously questionettes 2-5 of that one are redundant if you don't own a car. Otherwise, I would appreciate your candid response - and I firmly believe you will give it.
2. Do you EVER intend to own a property? At WHAT point will you commit to purchase? Is there a percentage drop in the market that will motivate you to take the plunge? What if the market drops further following your purchase? What if the market starts to upturn? Again, if the answer to the first questionette is 'No', then the rest is irrelevant. OR IS IT...?
I look forward to your responses, mon ami...
* Ric, not Nic, sorry.
Absolutely HD, ultimately a home is for living in and not an investment vehicle however i'm referring to opportunity cost. If I bought in 06/07 i'd be mighty hacked-off about the amount of compound interest i'd be paying back on top of the principal than if i'd waited a year or two.
In essence Nic is advocating buying a home with no consideration for the wider economy. Which is a ludicrous proposition for the biggest financial commitment most people will make in their lifetime.
Each Buyer will have their own set of circumstances, so this new 10% Mortgage is a great OPTION, it won't be for everyone, but other lenders will then follow suit and I sure rates will all differ.
I also bought my last property in 2006, and I dont feel like a SAP. WHY? Because I bought at what I thought was a good price, and the market has gone down and back up since then, and probably will do so over the years, but I don't care. Thats beacuse their is no quick buck to be made anymore.
This is just another option that people are being offered. If someone wants to purchase a home using this product, and their affordability and credit history is acceptable, they should have the choice to take the mortgage. If they decide they want to purchase a property at that rate, and there is no reason to suspect that their financial situation will change then great. Unfortunately this product doesn't come with a crystal ball to see what the house will be 'worth' in two years time though.
I know of some Agents that do try and find the best property for a buyer, not just the most expensive by the way. If someone HAS to be in a certain area, for work or school, then demand will mean they have to pay more for it.
"No one should be buying a HOME with a what will prices be like in 12 months attitude!"
Try telling that to the poor saps that bought at the peak of the market in 06/07 and then ask them how the felt about their purchase in 08/09.
I agree with Harry and am a little bit suspicious of other peoples motives on here. Are you and NR really all considering what's best for FTB's? Really?! I doubt it. EA's and NR simply want more punters through the door.
In most areas prices are clearly falling, have been for several months and this is likely to continue. Even if prices remain flat, YoY falls are about to move strongly negative meaning squeaky bum time for vendors.
For a FTB with a 10% deposit it is a much better idea to continue saving for 12, 18, 24, whatever months and eventually buy at a lower price and with a mortgage rate that isn't a complete rip off.
5.99% with base rate of 0.5%? Hmmm no thanks.
Harry: "Pee bee you have to think about remortgaging 2 years down the line." WHY? No you don't - buying the RIGHT property now, at the RIGHT price, means you shouldn't NEED or WANT to remortgage! NO-ONE should buy a property with the view to refinance in a short period. It is a gamble which will often not pay out.
The mortgage/remortgage mill is where much of today's 'negative equity' came from in the first place. Lenders have been previously happy to let Joe and Jane Public stick their next car or Caribbean jolly on a 25-year term instead of on improving the asset that will eventually pay the loan.
Why are you suggesting that people should plan to do this?
You REALLY shouldn't make "recommendations" when your knowledge and understanding of the mortgage world is so limited - and so obviously flawed. I am sure the FSA would LOVE to know who you are...
Harry, to start with NR aren't talking about less stringent lending, they are simply trying to help FTB's who haven't been able to save a 20% deposit get on the ladder. As Ric mentioned, these people will generally have a good credit track record anyway, if not then they wont be able to get that mortgage and will have to go for a different product. It's helping people get started, not irresponsible lending. I have little doubt that NR underwriters will be going through every applicant with a fine tooth comb.
People will only have to look at remortgageing if they take out a 2 year deal. If they think they will want to stay for longer, they can take out the 5 year product and see what the market is like then.
To agree with Ric again, you are buying a HOME, not an investment. it is not anyone's 'right' for a property to gain £20-30k within 2years of buying. In fact, most properties don't increase by that much for many years.
Pee bee you have to think about remortgaging 2 years down the line. Now a 10% deposit is fine if prices are static but they are likely to fall for a couple of years. So if you need to buy now it is best to have a bigger deposit especially with interest rates set to rise to act as a cushion. I know less stringent lending will increase transactions but it might not be best for certain buyers in the medium to long term. 5-10% deposits are fine when the Market stabilises.
Like many have said already nice to see a healthy clean debate on this one and alot of support it seems. In realtion to Harry's comment -
If prices drop 5%, 10% or 15% only when the buyer decides to sell will a price drop or rise (which ever has happened) matter in relation to what the buyer has left to pay on the mortgage.
No one should be buying a HOME with a what will prices be like in 12 months attitude! Leave that to the prop developers to worry about....Homes are Homes and this mortgage should be a vehicle for FTB HOME buyers or people who became trapped in the rental market to get on the Property ladder.
This mortgage is there for the people who have a 10% deposit, good solid income and no doubt a good track record with credit behind them! They are looking to buy a home not a 12 month get rich plan!
I appreciate it is human nature to worry what if! but if you can afford the repayments and you purchased a place you think you could be happy in for a few years minimum (ie a home) then make an offer on a house, negotiate the best price you can for the property and give yourself the extra cushion that way!
And remember the deals being promoted are a 2 or 5 year fixed so prices in 1 year do not matter! If buyers shop around for good decent (fair) PPI then unfortunate events can be insured against, if you think you will need a PPI policy to fall back on in 12 months then dont buy the property in the first place! as these should be for unforseen events.....!
Back to basics, you borrow if you can afford to borrow and even 10% of most property prices is a fair old amount to find so again well done NR for a bit of "normality" in the lending market!
Harry: your comment makes little or no sense. IF, as you write, prices WERE to drop by 10% in the coming 12 months, what possible good would it be to the buyers to have put down a bigger deposit? And why would they wnat to anyway?
You some high-flying FA, then?
If not - THEN YOU SHOULDN'T BE GIVING FINANCIAL ADVICE!!
90% mortgages seem too risky at the moment. If house prices are meant to be falling 10% this year it will put them with no equity. I would recommend buyers still raise more deposit.
90% mortgages should be the norm, 95% mortgages should be the maximum. No return to 100% or more.
Reward those with deposits >10% with lower rates. Anyone with 5% deposit have to be thoroughly checked before given the mortgage.
It is sensible to limit lending to around 4x salary, but it is ridiculous to expect 25%-40% deposits in some cases.
I think this is one of the least confrontational threads I've come across! So nice to see everyone (almost) playing nicely.
And people say Agents are back-stabbing sharks!
@CountryLass
Nope, nothing biased about what you say. I agree with you. Less than 10 years ago, renting was seen as something you did if you couldn't afford to buy, but now it's seen as more of a lifestyle choice, and more 'acceptable'. Our population is more mobile these days, so renting makes sense, as you're less tied in.
That said, there still seems to be that desire - for most people at least - to buy property, and to me, that's a good thing. A healthy property market supports both, in my opinion
@Neil Robinson
At the moment I only deal with Sales, but I have dealt with Lettings in the past. I am perfectly willing to concede that my opinion may be slightly biased.
This country has always seen owning property as a sign of wealth, of maturity and of security. Rental has, in recent times, been seen as 'old school'. To a certain extent it's a subtle (usually unconcious) form of telling previous generations that we are 'better' than them. We are richer and therefore can afford to pay a mortgage and purchase a home.
Many people, myself included, do not want to rent a property, we prefer to know that we will be able to live in the proeprty for as long as we choose and decorate and renovate as money (and Councils) allow.
Neither is the 'best' option and I think there will always be people who can't/won't buy. I do feel though that landlords have a too large share of property in some areas.
Good news..
Where are all the 'doomsters' with their negative unresearched posts today then?
" The Sun has got its hat on - hip hip hooray! "
@Ian.
Thanks, but I reckon my post is probably less about being positive and more about people needing to have a look at themselves.
If they can't afford a deposit then they need to look at why. Solutions are often found when we're honest with ourselves. A lot of the time "can't afford" should mean "can't be bothered."
In response to another poster on the 'lifetime of renting' point. My company earns its money in no small way from the rental sector, so I've no desire to see 'everyone buy' or 'everyone rent'. Both solutions are both perfectly adequate depending on your circumstances, and I can never understand people saying that one or the other is a better solution.
My beef is with people who claim they can't buy due to 'ridiculous' deposit requirements, when according to my example and looking at what people earn these days, they're arent that ridiculous at all.
It is good to see some positive stuff, not just the news article itself, but that (bar a few minor things) people are agreeing!
Excellent news here and I'm glad it's got such positive feedback. The aim is for other providers to follow suit and this could give a whole new outlook to the market.
The sun is starting to come out, people feel better about life and themselves and developments like this are very well timed.
Ps @ Ian - your glass is twice the size that it actually needs to be :P
For anyone questioning if people prefer to rent rather than buy, check out the archived article from 2nd Feb 'A Lifetime Of Renting?'
@ Neil Robinson - AT LAST!! Someone who's glass isn't half empty - Did you hear that everyone - A POSITIVE QUOTE!! Let me say this - I have lots of potential buyers who are wasting their hard earned wages on paying someone else's mortgage waiting for the day they can buy their own home.....what's stopping them? Yes thats correct the deposit.....what will encourage them to buy? Yes that's correct - a lower deposit....not the media, not even the economy - just a deposit they can afford. My glass is half FULL.
Ric: "Great News for the market and anyone looking to buy a house who can afford the repayments!" ABSOLUTELY! - we now have a vehicle. Who wants to drive it?
So - it costs roughly a grand a month to take out this mortgage. If your average HPCer was RENTING a house worth £150000, then the rent would more's likely be £750 a month plus, yes?
The question these folks need to ask themselves, is do they want to OWN a house for an extra two hundred and fifty quid a month, or continue to make their Landlord happy?
The question the NR, and others who will no doubt follow need to ask, is whether they want ALL their eggs in the baskets of BTLetters, or will they allow BTLive-in'ers some leeway in order to own their homes and reduce the possible threat of multiple repos when the budding Fergus Wilsons of this land of ours come unstuck, as many have to date...
Great News for the market and anyone looking to buy a house who can afford the repayments!
Simple thing is you do not have to take the deal, you can if you want, if you have more deposit than 10% then choose a better rate or lender, if you dont have more than 10% then here is an OPTION! I applaud NR for giving people a chance to get on the property ladder. Renting at £1000 a month £12k a year gone...... and where! Get into your parents or a mates house plead with them for a years free living and youve just got yourself 10% on a up to £120,000 house! (not easy for everyone I know, but I have people say to me when I suggest this....I'm not moving to my mums...."can you I ask"? yeh but I'm not, no way err never!....too many people want too much too easily!)
NR will not lend to the wrong people on this, that said they lend based on the "Snap Shot" of that moment and the "Past History" of a person so any future problems like one post mentioned just suggests the NR are estimating the market will not drop more than 10% (or hoping it wont) WELL DONE NR for that...I think they are right! If you as a borrower are worried about Neg Equity in the future "welcome to the world of property" but simply make a cheeky bid on the house you like and you might get another 5% or 10% off and voila more of a safety net....(the neg Equity fear has to end somewhere! otherwise we will be looking at 90% deposits and 10% LTV)
5.99% is high compared to the BR of 0.5% granted BUT the less you put in the more it costs to borrow, that has always been the rule of sensible lending and borrowing so I am not sure we should jump on the How Dare they try and make money Band Wagon.........question is...90% LTV good or Bad?..........well if 90% is bad, then to be honest 85% is not much better....and yep if 85% is bad the hey hoe back to the old 80% LTV's only and we are really stopping all FTBs getting on the ladder and owning their own property!
Sensible Lending - and Borrowing....IF YOU can't afford the payments dont borrow....lets put some onous on the buyers to think sensibly!
@Ian
I'd be surprised if we see any real meaningful house price growth for at least two years, maybe three.
House prices won't go up until demand equals supply. As long as houses are taking a while to sell, there is no motivator pushing prices up. A higher LTV mortgage product won't in itself push prices up, and certainly won't suddenly jolt everyone into wanting to buy their own house.
However - if this mortgage is a success, and Northern Rock don't catch a cold from it, it could encourage other lenders to follow suit. Again, I doubt this would in itself create a boom. You need good, general economic conditions - and general public confidence - for that.
I think the best we, as estate agents, can hope for, is an improvement in general confidence and funding availability this year, and I have to say I'm encouraged by this and other murmurings.
@ Neil Robinson
I fully agree, people do need to save earlier for things like this. I am a classic example of that. I bought my first place with my boyfriend (now husband) about a year after we got together. I hadn't saved anything, he had, but not enough for a deposit, so we used the Homebuyer scheme (before they changed the rules to new-builds only) and got a loevely 2 bed flat, for much less than we were offered by the bank.
If I had saved earlier, it would have been much simpler to buy, and better for all concerned. As it is, when we look to sell, 25% of it will go back to the HA, leaving us without a deposit, so we are forced to stay for proably another 3/4 years.
@CountryLass
Sorry, I wasnt clear in my first sentence. I wasn't referring to your brother's situation specifically, which is self explanatory. I was expanding on my original point. :-)
@CountryLass.
Fair point, but why do they have to live together to start with? I had been with my girlfriend for over two years before we lived together. Why do people have to live together so soon these days?
I used the 'boy meets girl' example. Other examples include two youngsters who want to house-share because they think it's like being on holiday, or people who simply want their own place. Why should you have to wait until you're ready to move before attempting to making the necessary financial savings? This is something that should be instilled into people from a young age - you get out what you put in.
Wouldn't it be a novel approach for banks to aim themselves at youngsters encouraging them to save from an early age? Not only do the banks have increased reserves to draw on, but also banks then wouldn't HAVE to resort to stupid lending as they then know that the borrower has enough to put in!
Yes, the banks can share some of the blame, but the 'I want it all, and i want it now' culture has to take some of it too.
Trust me at those APRS Northern Rock can afford to have at least a 60 % deliquinancy on those loans and any one that takes one out is a mug. It reminds me of the 11.99 fixed rates that credit agricole and BNP were pusing around in the last crash. It just smacks of bad lending policy again. With the bank base rate so low there is no reason to commit to APR's at that level. Prices need to fall further and are in provincial areas its only really London holding up due to foreign buyers investing due to sterling being so cheap. I'm afraid this is just another "red herring" on the Monopoly board.
To prevent banks type in 10 + 4 = 9 :)
@James
With houses in your area coming in at £80k then there is no problem in the first place. Two people with ambitions to buy should clearly be able to save £16k for a 20% deposit. Maybe there are other factors preventing people from buying at the moment?
@ Neil Robinson, although I agree with many of your points, I think you may be underestimating how easy it would be for a young couple to stay at home with mum and dad for 2 years, saving £500 a month. My brother is currently living with his fiancee, at her parents house with their 2year old son. To say that the situation is stressful is an understatement. They are trying to save for a deposit at the moment, but I doubt they will be able to get £12k in 2 years.
I do agree with @James though, most people suffer from impatience for things they want, and I definitely count myself in that category.
One of the points overlooked is that this will not be an interest only approach
To repay the capital and interest at £1000 per month should be perfectly acceptable to most two income households, wanting a house at £150,000
In my area, two young people could actually get a two bed end terrace with a garden for less than £80,000
This could be a start
Here we go. Daily Mail scaremongering yet again.
People need to realise - banks are not risk-takers. That's why they want a deposit, if the property price dips, then the loser is the borrower, not the bank.
Therefore, the decision to offer a 90% mortgage product is to be applauded, as it shows that the Northern Rock is confident that there won't be any massive slides this year. And that's a good thing - if we can see a bottoming out in the market, then buyers will return. Just the same as always, bascially.
In any case, a 10% deposit in theory is easy to raise. The problem in practice, is we now live in an 'I want it all, and I want it now' culture. Boy meets girl, and all of a sudden they have to live together, and that invariably means finding a flat to rent.
Even if you're on just £15k per annum, then it should be no problem putting £500 a month aside if you live at home with your mum. Do that for 2 years and you've got £12k, plus interest, plus whatever mum and dad invariably gives you, and hey presto, you're on the housing ladder.
@Ian, I hope that we won't see an increase in prices. In an ideal world, the greater number of FTB's would stimulate those who need to move coming on to the market, and then the extra properties would still need to keep their prices competetive, as the higher repayment costs would provide a 'ceiling' to what the new 90% buyers could afford. However, I realise that this is not an ideal world.
At the moment, it seems FTB's are what is missing from the market, and the few there are, seem to be buying the 'cheaper' properties, usually probate, repossessions and ex-rentals. The sellers of those are not moving on, so we have ended up with a bottleneck. Once we can get people able to afford those, at a price the vendors can afford to sell at then the market will start moving again.
I do speak to several tenants who would like to buy, as they resent paying someone else's mortgage, but when I go out to value proeprties with tenants, they sometimes try and buy the property themselves, but can't get the finance, as they are paying large some for rent and haven't been able to save 15-20%.
Country Lass - Very good point however with the re-introduction of lower deposit borrowing we will see an increase in buyer activity culminating in increased house prices?? How many tenants do you deal with on a day to day basis that would love to own their own home? As you rightly stated earlier tenants can comfortably afford £1000 PCM but not a huge deposit. The economy needs the housing market to stimulate growth.
Big deal. I wish people would stop whinging and accept that they need to save a reasonable deposit. If they can't do this then they probably shouldn't be buying. Prudent is the new reckless and I like it.
I think this is actually quite a good mortgage. Yes, the repayments and affordability is high, but the biggest issue buyers keep talking about is lack of money for deposit. There are people out there able to afford £900-£1000 a month, they are normally called 'tenants' I speak to so many tenants who would love to buy, but are still trying to save for the 15% deposit.
As long as NR keep an eye on the affordability and credit-risk of EVERY applicant, I think this will be a big help.
Unfortunately @Ian, I don't think we will be seeing 95% LTV anytime soon, as there is a greater risk of negative equity with them, as the prices are less than rock solid. They are good deals though, and I think in the future they will be back.
do people still read the daily mail then?
Not reckless, rates are to be expected in this market big question is what are the fees attached, People are far too concerned on rates and do not look at the associated costs.
Is this a step in the right direction? Will we ever see 95% borrowing again? I bloody hope so......