Entries Tagged 'mortgages' ↓
February 6th, 2009 — mortgages
Discuss the economic problems that might arise from large numbers of people falling behind with their mortgage repayments
The problems of people falling behind with their mortgage payments include:
- Mortgage defaults will rise causing people to sell houses. If people are forced to sell houses the increased number of houses on the market will depress house prices.
- Lower house prices will cause a negative wealth effect leading to lower confidence and lower consumer spending. This will lead to lower economic growth.
- Banks Lose Money. If people are defaulting on mortgage payments, banks will lose money. This is particularly a problem because:
- Banks are short of liquidity in current crisis.
- Mortgage defaults usually rise with house prices falling. Therefore as the banks sell the house they will lose out.
- Because banks are losing money, they will be reluctant to lend new mortgages without large deposits. This makes it difficult for first time buyers to get on the property ladder. A decline in bank lending can also lead to lower investment in the economy.
- Lower consumer spending. People who have fallen behind in mortgage payments are likely to be reducing other areas of consumer spending to try and meet payments. This will lead to lower economic growth.
Policies to avoid mortgage defaults will be published tomorrow
October 13th, 2008 — mortgages
Readers Question: The problem has been the number of defaulters. But for Building Societies there is less than 0.001% of 1% defaulters (Saturday’s Guardian) – where ARE all these houses being repossessed?
You are right that mortgage repossessions amongst building societies are very low. This is because:
- Building societies have to stick to stricter rules about lending than private banks. These regulations mean that they have avoided the worst excesses of the other banks.
- Home repossession in the UK is still relatively low. According to statistics by the council of Mortgage lenders. the number of repossessions in 2007 was 26,000 or 0.22% of all loans. Although this is predicted to rise to 44,000 in 2008 – it is still relatively low.
- Repossessions in Q2 2008 rose to 11,054 (71% increase on same period in 2007)
- However, It is significantly lower than in the last housing boom of 1991. when the number of home repossessions reached over 75,000 or 0.77% of loans.
The real problem behind the credit crunch is the repossessions in the US. It was the defaults on the sub prime mortgage loans that have caused a $1.3trillion black hole in the global financial system. The UK is suffering not because UK repossessions are high. But, because British banks were exposed to the credit defaults in US banks.
See: Subprime Credit Crunch explained
In the Future, repossessions rise because the UK recession will cause unemployment. On the other hand interest rate cuts will help homeowners meet mortgage payments. Interest rates (at 4.5%) are much lower than in the last housing slump.
Rate of Mortgage Repossession in the UK
| Period |
1 |
2 |
3 |
|
Mortgages |
Properties |
Properties |
|
oustanding, |
taken into |
taken into |
|
end period |
possession |
possession |
|
|
in period |
in period |
|
|
|
|
|
number |
number |
% all loans |
| 1972 |
4,770,000 |
1,760 |
0.04 |
| 1973 |
4,862,000 |
1,220 |
0.03 |
| 1974 |
4,910,000 |
3,290 |
0.07 |
| 1975 |
5,076,000 |
4,870 |
0.10 |
| 1976 |
5,322,000 |
4,950 |
0.09 |
| 1977 |
5,582,000 |
4,680 |
0.08 |
| 1978 |
5,896,000 |
4,130 |
0.07 |
| 1979 |
6,058,000 |
2,910 |
0.05 |
| 1980 |
6,210,000 |
3,480 |
0.06 |
| 1981 |
6,336,000 |
4,870 |
0.08 |
| 1982 |
6,518,000 |
6,900 |
0.11 |
| 1983 |
6,846,000 |
8,400 |
0.12 |
| 1984 |
7,313,000 |
12,400 |
0.17 |
| 1985 |
7,717,000 |
19,300 |
0.25 |
| 1986 |
8,138,000 |
24,100 |
0.30 |
| 1987 |
8,283,000 |
26,400 |
0.32 |
| 1988 |
8,564,000 |
18,500 |
0.22 |
| 1989 |
9,125,000 |
15,800 |
0.17 |
| 1990 |
9,415,000 |
43,900 |
0.47 |
| 1991 |
9,815,000 |
75,500 |
0.77 |
| 1992 |
9,922,000 |
68,600 |
0.69 |
| 1993 |
10,137,000 |
58,600 |
0.58 |
| 1994 |
10,410,000 |
49,200 |
0.47 |
| 1995 |
10,521,000 |
49,400 |
0.47 |
| 1996 |
10,637,000 |
42,600 |
0.40 |
| 1997 |
10,738,000 |
32,800 |
0.31 |
| 1998 |
10,821,000 |
33,900 |
0.31 |
| 1999 |
10,982,000 |
30,000 |
0.27 |
| 2000 |
11,173,000 |
22,900 |
0.20 |
| 2001 |
11,247,000 |
18,300 |
0.16 |
| 2002 |
11,364,000 |
12,000 |
0.11 |
| 2003 |
11,529,000 |
8,500 |
0.07 |
| 2004 |
11,511,000 |
8,200 |
0.07 |
| 2005 |
11,604,000 |
14,600 |
0.13 |
| 2006 |
11,742,000 |
20,900 |
0.18 |
| 2007 |
11,822,000 |
26,200 |
0.22 |
Council of Mortgage Lenders
Note: The number of mortgage arrears is higher than repossessions. People can fall into arrears without having their home repossesed.
November 1st, 2007 — mortgages
In the UK, there is a strong desire for people to own their own house. This deep seated desire is one of the factors behind the extraordinary rise in UK house prices. However, the cost of houses means that it is becoming increasingly difficult for people to get on the property ladder. To be able to buy a house, bigger and more risky mortgages are often being taken out.
These are some of the pitfalls behind taking out a mortgage.
- Average house prices have increased faster than incomes.
- House Prices are not guaranteed to keep rising
- Mortgage payments for first time buyers take a high % of income
- Variable interest rates in the UK. This means the cost of mortgage can change quite often. In the short term, interest rates are unlikely to increase; but, in the medium to long term it is difficult to predict
To get a mortgage students may have to consider an unconventional type of mortgage or ask for help from parents. These are Some options for a student to get their first mortgage
Interest Only mortgage. This means that you don’t make any capital repayments, therefore you need to find an alternative investment scheme. Interest only mortgages may be an option, but, only for those who expect their income to increase in the near future – making it easier to switch to a repayment mortgage.
Joint Mortgage. This is becoming increasingly popular as a way to be able to afford a mortgage. A joint mortgage enables you to share your income with another person to be able to get a bigger mortgage.
Deposit from Parents. Unfortunately, this is often necessary to be able to get a mortgage. With a deposit from parents you have a better chance of getting a mortgage. Generally, the bigger the mortgage deposit, the more chance there is of getting lower interest rate on your mortgage.
Government Mortgage Scheme. In the UK, the government do offer some help to key public sector workers for buying a house. However, these tend to be restricted to a small number of people. If you are a public sector worker such as teacher, nurse or policeman it may be worth checking out.
