Until very recently, 100% mortgages were more than common. Given house prices in the UK, most first time buyers, typically young couples, would be looking to 100% or even 110% mortgages that would allow them to purchase their desired property and be able to do any necessary renovations or buy the white goods many of us take for granted.
Although not trespassing too heavily on the sub-prime market, 100% mortgages were, and still are viewed as a more high risk proposition than a mortgage where the borrower has a larger equity stake. And, while the global recession is certainly having a cooling effect on the house price index, using the tradional- thrice your earnings mortgage sums, means that a mortgage is simply beyond the reach of a depressingly large percentage of the population.
So, it has been shown that the laisez faire approach leads the greedy to excess and the unwitting to unsustainable debt, it seems after a quiet christmas the watchword for the new year is caution. While many said that the banks wouldn’t be lending this year, they will. The governmet loans- read tax money- to keep the banks solvent were handed out on the understanding that funds would be available to those in need. Though, perhaps more importantly, as the major financial institutions make money from their loans, if they stop lending then their balance sheet starts to look precarious and secidedly unsustainable as a business model.
Though caution is not the prerogative of the financial powerhouses. It’s quite understandable that those with significant financial obligations are looking far more closely at the affordability of their lifestyles. And, while being cash-strapped is never a desirable situation; if it pushes more people to greater financial responsibility then once the worst of the recession is over, finance may be more stable. This can already be seen if you look to those who are buying houses in 2009- find the house, price it, run it through a mortgage calculator and if the numbers look good, then seek the loan. A better proposition than the buy-now-worry-later tendencies we were getting so used to.
——————————————————————-