Mortgages in Britain

First a quick update on our tenant search. As of yesterday, we'd had around 10 inquiries into the house. The unit in question is a 3-bedroom townhouse, with the master bedroom on the ground floor. Two of our queries came from our website ad and 8 came from the sign posted in the front yard. No serious bites yet, but it's a promising early start.

I ran a quick rental comparison the other day, using Rent-o-meter, and while it's hardly a flawless tool, it did suggest that our rent was about average for the area. About 12 months ago, with a slightly lower rent, we were asking in the high side of rental rates, so rents in the area have climbed quite a bit in the last year.

I thought I'd take some time today to share a little bit about the state of housing in Britain. For starters, a 30-year fixed mortgage is rare over here. Almost everyone uses 25-year ARMs, and getting a fixed rate usually means extra fees up-front. Of course the rates are more competitive than most American ARMs, but a rate hike in the UK affects everyone.

This ad, which I saw on the Tube, is pretty standard when it comes to British mortgages. Notice that the maximum Loan-to-Value is 75%. That means if the house is appraised at $500,000 then you have to be able to put down $125,000 as a down payment. Compare that to most American mortgages where putting down 20% used to be the norm.

As a general rule, most British lenders are willing to lend you 3 times your salary or 2.5 times your combined salaries (if you are buying with someone else, like a spouse). Recently prices have been climbing so high that lenders face a choice of either not making loans or loosening their standards. Some banks have increased their lending limits up to 5 times your salary or more. Compare that to the US where lenders will lend you 5, 10 times your salary, even up to 40 times your annual income...

Mortgage brokers are facing the same situations over here that they were in the US 2 years ago. Note a job offer for a mortgage broker that offers a base salary of $36,000 to $44,000, but with expected total compensation of over $100,000. That's a lot of commissions (or just a few on very big loans).

Lenders are loosening over here, people keep taking larger and larger loans. Banks are specifically advertising "buy-to-let" loans for would-be landlords... It's looks like a perfect storm is brewing which can only lead to the same result as the US. A partial collapse of over-priced markets (as in the US, there are areas of Britain that haven't tripled in price over the last 5 years. And, as in the US, those places tend to be less urban).

Still, even "loose" lenders over here are just now hitting the same levels that most Americans are used to. The US actually has one of the best mortgage markets in the world when considering the consumer. So if you have a nice fixed loan, consider yourself lucky when the Feds next hike the rate. Not every country enjoys those.


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rashid said...

While rising interest rates, it is unlikely that banks pay a large part on the values and policies. They are in a struggle to survive and not be generous next year.

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