Getting a mortgage is more difficult than ever

Mortgage lenders are approving fewer applications, putting an end to many a dream of home ownership. But is this really such a bad thing? Could it be better for our financial health?

If you once dreamed of relaxing with friends in a home you could call your own, the financial crisis may have given you a reality check – it’s changed the mortgage market beyond recognition.

You may even feel a pang of resentment towards all those who managed to borrow huge amounts with little, or no, deposit and are now balanced – if precariously – on the first rung of the property ladder.

Mortgage lending lowest for 10 years

Figures just released by the Council of Mortgage Lenders show that mortgage lending this August was the lowest it’s been in that month for 10 years – £11.4bn compared to a high of £34bn in August 2007.

There are a number of reasons for this. House prices are lower. Nationwide says the average was £166,507 in August 2010, but £183,898 in August 2007. And deposits are higher – the days of 100% (or even more) mortgages are over and you now need at least 10%.

But these are both symptoms of the fact that lenders are being much more careful about who they lend to and how much they lend them.

Get a mortgage the old-fashioned way

This might mean that fewer people can now buy a home, but it also means that only people with relatively healthy finances and a good track record can borrow what they need. It also means that borrowers are less likely to end up struggling with their repayments and even less likely to become trapped by negative equity.

If you want to become a homeowner, you still can, but you’ll need to do it the old-fashioned way – save up for a deposit and prove to a mortgage lender that you can afford it.

Have you had to put your home-buying plans on hold? Do you think we’re better off being forced to be more sensible about house-buying, or do you long for the free-and-easy days before the credit crunch?

richard says:

20 September 2010

The housing disaster was and is caused by the Thatcher policies of

One – forcing councils to sell council houses to tenants AND refusing to allow the councils to build new houses with the receipts – causing a massive drop in social housing. as council rents were used to help pay for the new builds. No rents – no income. This meant house price rises due to housing shortage.

Two – deregulation of rents – This gave rise to the vast increase “buy to rent” phenomenon – this raised rents to increase profits – making it more necessary to buy your own house (It had always been the case that it was cheaper to buy a house rather than rent), But rent regulations kept private rents down to social housing levels. – More housing shortage as people struggled to buy.

Three – deregulation of Banks – This meant that instead of a simple house costing around 2.5 times the annual salary. The Banks and Mortgage companies loaned up to TEN times the annual salary – Causing vast rises in House prices – but making it far harder to pay that mortgage back – The irresponsible loans meant Banks tried to sell off “sub prime mortgages” deficits – result Bank bankruptcy as no proper control

We have to get back to an attitude where most houses were normally rented rather than bought.- certainly in the near future. The trouble will be all that negative equity still to come as the present Coalition are going to cause serious economic hardships – particularly for those that cannot afford it.

I bought my house at 2.5 times annual salary – and had to cope with a 15% mortgage rate – I managed but 1000’s did not. Think what it will be like when the economic hardship couples with rising interest rates.in the next year or so.

Paul says:

Richard. Agree with most of your comments, but have to disagree that renting is the way forward. Renting from prviate landlords is fundementally flawed in a number of areas. Firstly, what happens after retirement age is reached, when your income dissapears & the pittance of a private pension no longer covers the rent? Secondly, how is it possible to feel settled in a property that you can be asked to leave at any time at whim of your landlord?

21 September 2010

Paul – This is the trouble with the Thatcher de-regulation of rents – and the forced reduction of social housing. The whole point was the vast majority of people that used to rent never had the worries you speak of. – The Landlord had limited powers and looked at the renting system as a very long term investment.with a steady income – and houses were much cheaper. I knew dozens – if not 100’s – (due to my job) of tenants .perfectly happy in the knowledge that they would never be able to earn enough to buy a house and were secure in the tenancy agreement .

It was only AFTER Thatcher that council tenants were able to buy houses at well below market price and then sell them for a large profit – that the craze (greed) for buying houses whether you could actually afford them or not – and mortgages were unrealistic. Before the war it was normal to rent – just as it is in other countries NOW. We need to re-instate the rent regulation – which would make the “quick profit” buy to rent profiteers look elsewhere for their profits – lower house prices and rents at the same time..

Hate to point out but private pensions should be able to pay the rent – otherwise why have them? (My pension would certainly pay for a flat now and I’ve been retired for 15 years. Plus that is one reason for housing benefits – Unless the Condems .decide to stop such benefits to save the money for Business gluttony – which sadly is certainly possible.

Renting from private landlords never used to be flawed here – and doesn’t seem flawed in other countries. What is the alternative?.

Red kite says:

22 September 2010

The main problem in housing is that they are far too expensive. Causes – a large increase in 2nd home ownership; lending well over 3 times gross income; self certification mortgages; too many buy to let properties; lack of rent regulation in the private sector.

Answer – reduce prices by restricting 2nd home ownership to the most expensive houses; a legal maximum of 3 times gross certifiable income; restrict buy to let; regulate all rents (the rent officers did a good job).

I was a qualified surveyor for 40 years, hence my suggestions above.

Last thoughts – the only people who benefit from high prices are estate agents, solicitors and the government. Possibly also older people wishing to downsize, though their smaller property would also be cheaper.

Cheshire Resident says:

40 years ago my husband (to be) and I had to save a 10% deposit for our first mortgage and were only allowed to borrow 3 x HIS salary. My salary didn’t count as it was assumed that I would have children and give up work. No part time hours or flexible working then!
We struggled through the 15% mortgage interest rate by temporarily increasing the term of our mortgage to 30 years, bringing it back in line when rates reduced by overpaying, and moved twice to accomodate our growing family as my husband improved his job.
Having a mortgage is a millstone aroung your neck, but at least when you retire your home is paid for. We recently moved and ended up renting for 18 months before we bought another house – I never realised how much owning my own home meant! The landlord had only rented the place because he couldn’t sell in a falling market and wasn’t prepared to reduce his asking price. The shower was piped the wrong way round so it ran cold instead of hot, the drains were blocked, the kitchen tap was in pieces, there was damp in one bedroom so bad that “toadstools” grew on the carpet, there was no handle on the outside of the patio door so you had to be careful not to lock yourself out, the conservatory leaked when it rained and the garden was an uncultivated jungle. But because it wasn’t ours, we couldn’t do much about it and the landlord managed the property himself, which meant he just kept ducking our calls and failing to do the repairs. My son re-plumbed the shower over the bath so we could use it and then we found that the bath wasn’t sealed to the wall so the water ran down behind it! We bought this house, not because we’ve found our dream home, but to get out of our nightmare home!!
So many people are advised to rent out their properties if they can’t sell, but it doesn’t give the tenant any security and people need long-term tenancy agreements if they are going to consider it as an alternative to buying.

Cathy Neal says:

23 September 2010

Interesting data just released by the Council of Mortgage Lenders shows that pretty much everyone (96%) in the UK thinks we have housing problems. Young people not being able to afford to buy a home was the biggest concern for people – 80% of respondents cited this as a worry.

This indicates that owning a home is still seen as a priority for most people in the UK. Richard – it seems unlikely that we’ll ever get back to the position where most property is rented.