The Telegraph reported yesterday that "Tough new mortgage lending rules to be announced tomorrow are expected to hit millions of prospective first-time buyers as well as those in their 50s"
Looking at the new rules, they hardly seem tough compared with those that were in place when I took out my first mortgage in the early sixties. However, more recently, until the crunch came, most lenders were throwing money at borrowers, based on the assumption that in an era of rising house prices, they couldn't possibly loose out!
First in line to be hit are interest only mortgages, where lenders will require proof that the prospective borrower is making appropriate arrangements to repay the sum borrowed when the mortgage period expires. What's tough about that? Surely that's quite reasonable for the borrower to explain how he expects to repay the money. The Mail today suggests that these represent a £100bn 'time bomb' where the home owners have no idea how they will pay off their mortgage when the time comes.
Next come the oldies, where lenders will be told to make
sure that a mortgage cannot be given out unless a homeowner will repay it
before their 70th or 75th birthday.Well that lets me out!
As I said, rules like these were commonplace when I took out my first mortgage back in the sixties, so what is all the fuss about?
sense says that you don't lend anyone money unless you think they will
be able to repay it. Not only did I have to find about 25% deposit for
my first house, the maximum amount that they would lend me was limited to 2.5 times my annual salary with no consideration being given to my wife's earnings. As well as that, I also had to demonstrate that I would be able to repay
it by having a savings account with my chosen Building Society and making
regular savings similar to my potential mortgage payments for at least a
year before they would even consider putting my name on the list for a
mortgage. All this whilst I was paying rent at the same time.
I would add that in the sixties, interest rates were far higher than they are now, with the base rate varying between 6 and 8%. At one point, in 1976, the base rate reached a high of 15% before falling back to 9-10% for a long period up to 1992. The all time high, in November 1979 was 17% ! Now the base rate is 05.% and it will probably be less by Christmas if the media is to be believed.
But it did teach us to save and set our priorities. No going out to buy the latest "must have" gadget! No expensive (or even cheap) package holidays. My wife brought up two children without disposable nappies or a washing machine. Nappies had to be washed by hand and dried each day, if necessary in front of the fire. Anyone who has to do that now would consider themselves seriously deprived, but at least by the time I retired, we owned our house outright and had a bit of money in the bank.
If these new rules start to make people think about the real priorities in their lives, then they must be a good thing.
I've just received a letter from the Halifax telling me that the interest rates on my "Reward Savings Account" will fall from 2.5% to 0.5% on 8th November. Time to do some research into savings accounts elsewhere!
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