Housing minister Grant Shapps’ proposal for ‘mates mortgages’ has come under more fire – this time from mortgage lenders.
The Council of Mortgage Lenders effectively said both borrowers and lenders should steer well clear.
In a briefing, the CML said it wasn’t the size of monthly mortgage payments that were the problem for first-time buyers, but the size of the deposit required.
It said: “Although some lenders do offer mortgages to groups of friends wanting to buy together, demand from buyers for this type of loan is limited. There are good reasons why both borrowers and lenders are cautious, given the potential problems associated with mates mortgages.”
The CML said potential problems happened if one of the joint borrowers cannot pay their share of the mortgage, since the other borrower would then be liable for the whole mortgage repayment. Friendships could also break down or one of the borrowers move out.
“Historically, there have been circumstances encouraging a greater take-up of mates mortgages. But when this has occurred, it has also exposed their flaws,” said the CML.
“In 1988, the Government announced that multiple tax relief for home-buyers would end later that year, providing a short-term incentive for people to group together to buy a home. Even then, however, take-up was limited, and the subsequent breakdown of these arrangements led to mortgage payment problems for some buyers, contributing to an increase in cases of possession.
“The reality is that ‘mates mortgages’ have never been a particularly attractive option for borrowers. Our statistics show that between 1983 and 2005 (when we stopped collecting this data) purchases by three or more people accounted for considerably less than 1% of all first-time buyer transactions – totalling no more than a few hundred cases per year.”
It went on: “The case for ‘mates mortgages’ might be clearer if house prices were rising strongly, with owners enjoying the prospect of capital growth and avoiding the possibility that higher prices could make it more difficult to buy in the future.
“But that does not apply in current market conditions, particularly when any modest capital gains have to be shared among a group of buyers.”
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Comments
From the article:
'... the CML said it wasn’t the size of monthly mortgage payments that were the problem for first-time buyers, but the size of the deposit required.'
Sorry? Are monthly mortgage payments fixed for the duration of the mortgage? Or are first time buyers to be induced to buy when interest rates are as low as they have ever been?
This is bloody scandalous. All mortgage offers should be based on affordability that uses the average interest rate over the last 25 yearsf - not the current (very low) rate.
We seem determined to lure young people into taking on unmangeable debt.
Or do we insist that all young people take on such massive mortgages that they can never afford to have children. Bit short sighted that.
All UK Governments try to manipulate the housing market when thinks are not running smoothly and their interference only makes matter worse!
As I said the other day Schlapps is a true dimwit who needs to be strung up.
Mr S - sod off out of the property business as you have no idea about it and this is made abundantly clear by your inane ramblings and hairbrained ideas.
In the meantime as I know you wont go let us have another stupid idea like 105% mortgages, Home Information Packs, Mates Mortgares...............
My mates dog is much cleverer than you as at least he does what he is told without question and if I tell him to go away he does.
Dear Mr Shapps, found this blog from year n half ago, it may still not be to late to try this, as you clutch at straws.
J.Rothschild
January 13th, 2009 at 8:53 pm
The Bank of England should now open its doors to anyone with a mortgage or credit card debts, offloading expensive debt to make it more manageable. Consumer confidence is everything. If you can prove an unmanageable debt to a bank or credit card, they should take it on immediately. As the exposure to risk for each of the banks/credit cards falls, so confidence in the markets will rise, and as consumers finally benefit from the true slump in the economy by regaining control of their finances, so they will act more prudently as they move forward – they will begin to save and spend more efficiently. Everyone is learning lessons the hard way, but let’s not torpedo the economy simply to teach people an even harder lesson. You need to hand the benefits of the 1-1.5% base rate straight to the consumer, not to the banks who will only try to shore up their own immediate exposure to risk. Everyone should contact their local MP immediately to make this a reality.