An end to 100% mortgages?
Wednesday 10th September 2008, 3:00PM BST.
ISLANDERS hoping to get on the housing ladder with 100 per cent mortgages could soon be permanently disappointed.
Island mortgage lenders may become more tightly regulated, with 100 and 110 per cent mortgages outlawed.
Economic Development Minister Philip Ozouf said that he favoured introducing new regulations in the wake of the credit crunch.
Current global economic problems, he said, had been sparked, at least in part, by banks lending too much cash to home buyers who did not have the means to repay it. At present, mortgage lenders in Jersey are unregulated.
Any new regulations would bring the Island into line with the UK, where lenders are subject to tighter controls.
Senator Ozouf told the States this week that, for example, lenders could be required to advertise interest rates in a more uniform and clear way. And the rules governing the selling of endowment mortgages could be tightened.
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While i agree that the current credit crunch is down to the mortage market in the USA i dont think it fair to cut 100% mortages totally. The banks have a responsability to lend money in the knowledge that the person can make these repayments and this did not happen in the USA and so now we are suffering because of the finance industries mistake of over borrowing to the housing market. The majority of the mortage lenders in Jersey are some how linked to the UK and already use that responsability when issuing loans. Why should Jersey first time buyers or families suffer because the finance industry made this Boo Boo in the USA?
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This has to make you laugh given that Jersey was the jurisdiction which helped facilitate those lovely SPV structures which led to Northern Rock offering its 125% loan to value mortgages!
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It is too late for this to make any difference. The Jersey housing market has been even more inflated over the last few years than the UK and US markets as 100% mortgages and ridiculous salary multiples have been made available. Inevitably it is now going to go the same way as those markets as the period of cheap credit has finished worldwide. We will see a return to normal lending criteria with 10% deposits and salary multiples of 4 times. There is no point now trying to ban something that is no longer available and which no commentators are expecting to return anytime soon.
And supply and demand arguments will not effect this. The same argument that demand outstrips supply is trotted out by UK homeowners in denial who point to the expected increase in the UK population by virtue of immigrant workers and the UK governments calls for massive homebuilding programmes to deal with that. The UK market is actually in freefall and is likely to be down by 30% peak to trough by the end. After all a house is only worth what someone is willing to pay for it and now people cannot borrow as much as they could over the last few years houses are obv worth less.
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Perhaps it is time that the States re-introduced the “States Loan”. I remember my parents first house purchase was thanks to the ability to have a fixed rate loan from the States.
In these difficult times where it is harder and harder to get on the property ladder, the States loan scheme seems like the perfect answer
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homes cost world over now. i cant afford a house or flat and locally bred. no one cares anymore ,even in rental sector no one cares. jersey is 3rd world whether buying or renting! look after the working class? not here!lucky i,m single don,t need to buy . 4 luxury holidays a year does it for me. a house is only bricks and mortar and you cant take it to the grave.
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Al has it spot on. The ‘supply and demand’ argument is largely tripe.
Nearly all properties are bought with mortgages. During the past few ‘boom’ years (heading right back to 2001 and the aftermath of 9/11) banks began to relax lending criteria in the UK (including Jersey). Whereas a person could only borrow 3x salary in 2001, by 2004/2005 banks were prepared to lend the same person 4x or 5x the same salary.
The point is that, relaxing lending criteria drove up prices – even with the same number of buyers and sellers, every buyer could ‘afford’ to pay just a little bit more by taking a bigger mortgage. And so the cycle continued, up and up – nothing (or very little) to do with any increase in salaries or improvements to the housing stock itself. People were just prepared to borrow (and banks prepared to lend) at ratios that older generations would think crazy.
Now, we’re merely in a reverse of that cycle – mortgage funding has dried up and we’re moving back to a risk-averse position where banks lend at sensible multiples. Inevitably, this will lead to price falls – if someone absoutely has to move, then they’ll need to drop their asking price until they meet a willing buyer who has secured a mortgage.
Any kind of scheme designed to help buyers make up the ‘shortfall’ between an asking price and available mortgage finance is missing the point entirely. Unless and until the asking price is met the property will remain unsold – why should it be a question of making up a ‘shortfall’? Just because a similar property sold for £x last year doesn’t give any kind of right for another seller to definitely receive the same amount a year later. In a market, price is set between a willing seller and a willing buyer. If we leave things up to the market, we’ll find that, if a seller wants to sell they’ll just have to drop prices until a wiling buyer is found who has a mortgage and deposit sufficient to buy.
The UK is currently suffering a stagnant period where sellers are holding out for higher prices – this is slowly changing and sellers are realising they need to drop prices in order to sell up. Jersey just seems to be lagging by a few months. Say NO to any daft measures intended to distort the market – no intervention was made on the way up!
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I am disgusted at how hard they are making it for young Jersey couples (children or no children) to buy a family home where they were brought up. Too many Jersey families are completely priced out of the market, and with the cost of living, how on earth are many expected to raise even a 10% deposit on a 3 bedroom home is likely to be nigh on £40000 now!!!
Unbelievable!
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Clare, the sad thing is, thats only if the joint income is in the region of 50k each in order to get the 4x income to cover the mortgage !! I dont know many families with a £100k per year income do you? I am a proud Jersey born woman, with a husband and 3 children with sadly no hope of ever being able to buy a home for my family on this Island which I love – the States (as they are currently) do not care about the genuine families who want to make a home here, they only care about turning Jersey into a mini London and to hell with those of us who are being trampled on in the process.
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This is getting absolutely disgusting, flat after flat is getting built in Jersey, they are over priced and under sized and the quality is unbelieveably appaulling. I am one half of a couple, and perhaps under slight naivity I had the intial presumption that with the help of one other I could hop straight on to the property ladder in the first time buyers market. Ha! What a joke.The only affordable apartments for myself and my partner are ‘Spectrum Apartments’ why anyone would want to invest in these shabbily built, over priced, unsound proofed boxes I will never know. I would make a better home by converting a kennel.
The states should be encouraging and helping the young professional community in stepping up on the Buyers ladder instead they sit on their backsides and make life harder by finding ways to screw the public out of more and more money.
I agree that a States Loan would be a big encouragement but unfortunately I have the impression they have better things to spend their money and resources on, i.e. flushing it down the toilet!
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The principals of our legal, trust and accounting firms appear to have got too greedy for business. They are not really that bothered about the conditions their staff have to live in due to overcrowding pressures on the island. They are just simply looking to “trouser” the profits possible in the last 5-6 years of boom markets. At least in London or Dublin you have the opportunity to commute in to work from cheaper areas.
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Just wait for the Jersey housing market to crash in the same was as the US / UK / Irish / Spanish etc markets are. In two years time properties could well be 30% or more cheaper. Use the time to save a deposit. IMHO only a fool would buy now.
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It is clear as a visitor to Jersey that the island really does only care about the rich (and by that I mean the extremely rich) and businesses. It’s disgusting frankly.
Clare, I can sympathise, in Scotland many island homes (and farms for that matter) are now bought as second homes for English folk and genuine islanders are being pushed to the mainland to live, working farms are changed to non-working farms.
Roll on independence when we can bring in sensible legislation to protect island life.
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why do you put up with this stuff, come to
Canada you can still buy a nice house for
$300,000.00
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Given that you are not subject to all the EU rules that the UK are, could Jersey not build affordable and decent houses making them only available to people that were born and educated on the island?
Jersey appears to not care that all its young people will have to go to the mainland and all the incomers will be richer (and therefore probably older) people, you will in 10 years time when your health service cannot cope and all your workers will be seasonal workers from Europe. You won’t have any Jersey people left, but apparently no-one cares about that.
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I recently watched a news item about remembering those who evacuated the island due to the second world war. Can the government not see that the problems THEY are causing is resulting in a continued mass evacuation from Jersey ???? Only this time it is not due to war brought on by external parties, it is our own government that are causing it – Very sad isn’t it ?!
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Al,
You are talking rubbish, there is no way the housing market in Jersey will fall by 30% in 2 years, it may level off but because of the size of the island and the number of inhabitants needing housing. It’d be better to snap up these mortgages while the are still available instead of wasting money on rent for the next 2 years waiting for a crash!
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That all depends.
Let us assume that there is a wave of mergers among the banks with a consequent thinning out of staff.
This is highly likely, I can see quite a few smaller banks getting absorbed by their larger brethren as an alternative to going bust in the current climate.
At the same time older people in Jersey decide it is time to cash in their overpriced housing chips while the going is good. Take the wodge and buzz off to somewhere warmer and cheaper to see out the rest of their days.
Result, a stagnant or declining market.
Whenever everyone starts saying a market cannot fall is the time to sell.
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bergerac – hardly anyone can actually afford a house from cash. its only due to mortgages that most can buy. i personally would not lend to someone at 10% margin against an asset which has a price/average income ratio way above the uk. espcially when there is a 1 in a 100 year crisis in the finance industry where most people in jersey – who buy houses – work.
but maybe i’m just being picky.
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There is still plenty of demand in Jersey – there are still lots of viewings going on.
The only problem and slowing factor is that the Banks are not lending.
Once they start to lend again, the market will find its feet, albeit at a much more sensible growth rate (because hopefully the Banks will have return to more sensible lending policies!).
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Some of the comments on here show (I’m afraid to say) an almost irrational belief that current property ‘values’ are somehow supportable. It’s a shame that this is representative of society at large – prevalent is a lack of understanding in relation to what amounts essentially to simple economics.
In addition to lots of “demand” – i.e. “viewings” … there is also “plenty of supply” – every agent has a stack of unsold properties at the moment and not a lot seems to be shifting. So, we have a “market place” but one in which there isn’t much buying or selling. Something has to give to fix the impasse.
If everyone needs to borrow to buy then “price” is inevitably correlated to the availability and cost of finance. Therefore, why is there this insane belief (insane, although understandable to the extent it’s a view held by a seller) that current ‘prices’ equate to fair value and represent the natural equilibrium of the market (i.e. the price is right but the “financing is wrong”).
Think a little deeper about the problem. Prices go up (sometimes dramatically) when financing criteria are relaxed. That’s exactly what happened during the period from 2001 to August 2007.
When financing criteria are tightened…. what happens?
The answer’s obvious really and the sooner the ‘market’ accepts this, the sooner everyone can move on. The sad thing is that all this is playing out in the UK already – estate agents are already going bust due to the lack of transactions. Is Jersey really immune? No chance – although I wish it were (if only estate agents would think the unthinkable and demand their clients to cut prices!)
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I know people are interested in buying places and the only way most people can do this is with the 100% mortgages.
They are encouraging first time buyers to buy and expecting them to be able to afford them without a 100% mortgages?!!!!
And as for setting up a home buyer scheme that only people that earn more than £40,000 a year, really are first time buyer going to be earning that much?
I ask the states to look at what they are telling us and for once use their brain because the way things are going no one including first time buyers will be able to afford/live here.
You can’t even get a decent flat over here without spending 200,000 it’s ridiculous.
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