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First Time Buyers
High LTV Mortgages
The UK property market has seen some strange things this week. Apparently house prices are up, as is the number of home loans or mortgages. Granted not by much, but up nevertheless.
Initially, it might be thought that this would be a good thing, and largely it is on the "feel-good factor" front. The problem starts when you begin to look at why house prices are up, and indeed approved mortgage numbers have improved too.
Only a short while ago I wrote something about the introduction of higher LTV mortgages and special "deals" from lenders for first time buyers, and what these kind of things lead to. I have also covered what, why and how house prices are dictated, and the lack of control any individual actually has over them.
The point is simple: more lending, higher LTV, and more lax requirements mean people are able to borrow more, buy more expensive properties, and house prices go up, which, in turn, makes said properties less affordable, harder to pay for, and eventually leads to negative equity.
As much as what this is wanted by a fair proportion of the masses to bring confidence back to the masses in the housing market, it comes at a price.
You see, Mr. Feelgood is thinking "wahey!" at the moment. If he owns a property, it's suddenly worth a bit more. If he happens to be a buyer, he can get a mortgage that bit more easily, or for that bit more money. The problem however, and as negative as this might be, Mr. Feelgood might well be like an excitable child having discovered sugar for the first time, washing it down with crates of high caffeine drinks, only to discover shortly after that the come-down afterwards really doesn't feel so good after all.
On top of all this, and keen to cash in on Mr. Feelgood's partying ways, Northern Rock has popped up with some interesting news.
Just 3 years after Northern Rock went begging to the government for a bail-out to avoid swathes of Geordies hurling bricks through their shop front windows demanding their cash back due to pending bankruptcy, Northern Rock have announced that they are now upping the LTV on some of their mortgage products to 90%
The problem is that Northern Rock needed the bail-out because they had what they thought was a genius mortgage product in the first place – 125% LTV mortgages. Great when the housing market is booming, when the boom starts to subside though, the begging bowl makes an appearance. We have seen elaborate statements before from bankers that like to play at being housing experts, only to find they really aren't quite as good as they thought they were. (Link to banker in landlords clothing)
On top of this, rumours abound that Morgan Stanley are on the cards to be brought in to assess and advise the possibility of auctioning-off the now "rescued" lender. Now that the government has fended off the folk who saved hard all their lives from burning them to the ground in a high street melee, it would appear that the bank is now an attractive asset again after being propped up with tax-payers cash and having all its debt conveniently rinsed away.
It's likely in the world of spin in which we live these days that the bank has come out with a shiny new mortgage product (similar to the same one that confined it to a slurry pit of doom just a few years ago) in a bid to boost its books for the short term, haul in some more debt willy-nilly and start the whole cycle again.
In all, it's a week of more spin than a donkey with a spinning wheel, on a roundabout, on an ice-rink in a flooded shopping center in northern Russia. House prices and lending stats are artificially up and will remain so until next month's numbers come out and we all discover that sugar rush highs are not quite so fun the following day, and a dizzy donkey is not a lot of use to anyone.
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*This page is provided for information purposes only and should not be construed as offering advice. IPIN is not licensed to give financial advice and all information provided by IPIN regarding real estate should never be treated as specific advice or regulations. This is standard practice with property investment companies as the purchase of property as an investment is not regulated by the UK or other Financial Services Authorities.