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Now homebuyers may be forced to find 15% deposit
Simon English18 Mar 2009
HOMEBUYERS could be forced to raise deposits of at least 15 per cent under proposals being considered by the City watchdog.
Lord Turner, chairman of the Financial Services Authority, today said banks could be prevented from offering huge mortgages such as those seen before the financial crash.
A 15 per cent deposit would mean buyers of an average London house costing £300,000 would have to raise £45,000 - well above the average wage of £32,000. It would mark an end to excessive lending practices of failed banks such as Northern Rock which was offering 125 per cent mortgages.
Lord Turner admitted the proposals needed further exploration and said the FSA would publish a paper on its findings in September. He highlighted that buyers who would struggle to raise such large sums and could end up being excluded from the housing market.
Lord Turner's review today also declared that the collapse of Northern Rock and HBOS would not have happened if tougher rules had been in place.
He unveiled plans for more stringent regulation of the financial system including curbs on City bonuses and casino-style risk-taking by banks in the City and at Canary Wharf.
He admitted the regulatory system set up by Gordon Brown when Labour came to power had failed. He said: "Changes recommended are profound and the banking system of the future will be different from that of the last decade."
Key to his review is a move to force banks to build up more cash reserves. The FSA will also investigate closer the risk-taking of banks. Lord Turner also called for increased scrutiny of hedge funds and credit-rating agencies, which are widely blamed for having contributed to the crisis.
Asked if such a regime would have prevented the failures of British banks, he said: "Yes. Had we had these processes in place 10 years ago they would have produced a very different financial system today." Simon Rubinsohn, chief economist of the Royal Institution of Chartered Surveyors, said: "Restrictions on mortgage lending run the risk of stifling activity in the housing market and causing more problems than they solve."
Shadow chancellor George Osborne claimed the Turner review showed poor regulation by Mr Brown was to blame for the economic crisis. It was "a devastating critique of the last 10 years of economic policy", Mr Osborne said.
Reader views (30)
If people want to return to 1970s values, will they also be calling for interest rates of 13%, the expectation that wives would give up work once married, the removal of presumed equality on divorce etc?
If the Government insist on placing barriers to home ownership, then a new generation will be forced to rent for decades, and existing property owners will mostly end up in negative equity (because house prices are determined by the amount that can be borrowed to buy them - remove the funding, and the capital values plummet).
So, there will be two types of house occupancy, those with negative equity who cannot sell because they can't buy themselves out, and those who will be forced to rent forevermore because all of the housing stock is stuck in negative equity, and everyone cannot sell even if they wanted to.
Neither is much of a vote-winner.
- George, London, 19/03/2009 09:32
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Whats wrong with flat shari ng or apartment sharing or house sharing? The trouble these days is that everyone wants a cushy life and is not prepared to live within their meand or save for the necessities. I had to fork out a 20% deposit on my first house a couple of decades ago. All the furniture I had was a bed, table and chair. Nowadays people want a plasma screen, washing machine and fridge before they've even paid the first mortgage insament.
- Dhanraj, basildon, 19/03/2009 09:20
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It should be 20-25% not 15%...we never want to see people get into the mess they are getting into at the moment, again....
- Nicky, london, 19/03/2009 09:17
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I very much doubt that the government is truly going to sabotage geniune buyers who can afford to buy at say 3 or 4 times their salary whilst the market is low by enforcing such a regulation and the usual 5% is reasonable. It is only sub-prime mortgates and ridiculous 10 x salary purchases that are dangerous and that situation should never have occurred. Regardless, the main problem is that no-one has job security right now so expect foreign investors to be snapping up cheap houses at some point, undermining the British economy and domestic housing need even further.
- Real, London, 19/03/2009 08:25
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It's a good first step back onto the road of financial common sense.
As for high prices and availability of housing - particularly in London - there's plenty of accommodation: the problem is too many people. It's simply a matter of supply and demand.
- Croyboy, Croydon, 19/03/2009 08:10
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Good - is sanity returning. What is so wrong with this. I saved for 10 years (after paying off my debts) and then put down 30% deposit on a flat last year. I don't earn a huge amount, about average, now have a fab flat (in Zone 1), at a price I can afford (under £200k)
What is wrong with this - its not normal to expect that you can be in your mid twenties and buy a £300k house. Some things, like good soup - take time.
- Jc, se1, 19/03/2009 07:21
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Back in the early 80's a 20% deposit was the norm and if you coudn't afford it you had to rent. Perhaps the government will have to invest in council housing again, that seemed to work...
- Colin Snelling, Melbourne Australia, 19/03/2009 02:20
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THIS A CRAZY STORY MOST PROVIDERS HAVE BEEN ASKING FOR BIG DEPOSITS SINCE THE START OF THE CREDIT CRUNCH,THAT IS WHY THE FIRST TIME BUYER AND BUY TO LET IS INACTIVE
- J Windsor, LONDON ENGLAND, 18/03/2009 23:23
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For years the Goverment and the FSA just sat back and watched the property bubble develop. Now it has burst it's a bit late to introduce 'prudent' conditions. Had such conditions been introduced years ago property prices would be much more affordable. It was mainly reckless lending that sent prices sky high.
- Douglas, Bristol, 18/03/2009 22:49
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I cannot believe mortgages were handed out to people with no deposit,no wonder there was so much defaulting,i know of someone who got a mortgage and didnt even have a job,deposits should be 20 per cent at least,we will never get out of the mess reckless lending caused unless it is stopped,but the FSA has been useless since it was given the powers to regulate by Brown..
- Jean, London England, 18/03/2009 21:39
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This man was vice chairman of Merril Lynch between 2000 -2006 when the worst of the excesses were committed. That was the organisation that paid out multi-million dollar bonuses the day before it was taken over by BofA who have since discovered a $45 billion hole.
You could not make it up. We are led by donkeys.Bring on the revolution.
- Faisal Aziz, Kingston, 18/03/2009 21:30
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It's called Saving and it's something we should all be doing. There are too many excuses why people can't save deposits. Everything has to be immediate. We need to rebuild some old values and rip up the credit agreements and credit cards. Never before has a real back to basics approach been necessary.
- Maysie, London, 18/03/2009 21:21
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The Government expects 2nd hand properties to fall by at least 12% this year, so since in the Banking industry it must protect its core industry 1st and foremost. Voters are fikle, Industry is of paramount importance to Government.
- William, East Grinstead UK, 18/03/2009 21:01
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I strongly suspect that Lord Turner may already have a house to live in (or several, for all I know).
So the rule he creates won't affect him & his family.
How very convenient.
Queue up for cardboard boxes at your local supermarket, young working Britons.
That's your only hope of accommodation in the UK now.
- Gordon M, Gerrards Cross, Bucks, 18/03/2009 19:28
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Back in the 1970's when 100% mortgages would have been unheard of and considered a sign that the buyer was untrustworthy, 25% deposits were common. 20% was a minimum. 15% is a joke! Same old same old and a big sign we are still, as a nation, in denial.
- Tallulah, Hove, UK, 18/03/2009 19:17
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How is the first time buyer going to manage this, he/she graduates after paying increased university fees, then has to pay the post election tax rises and then is expected to find an increased deposit/stamp duty etc, dream on!each case should be based on it's own merits
- Matthew, Ware, Herts, 18/03/2009 18:53
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You say it like its a bad thing?!
Hopefully this will bring some long over due sanity to the housing market and end the immoral house price increases for ever
- Lb, London, 18/03/2009 18:27
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Will these changes affect people remortgaging as well. I bought a property with a 90% mortgage and it has dropped in value. If I wish to remortgage will the banks force me onto their standard variable rate if I can't to put down another 15% deposit to boost the equity for remortgaging.
- Lee, london, 18/03/2009 18:20
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In the 1970's it was not uncommon for "married" couples to have to find 40% deposit--and the actual loan was usually no more than two and a half times the man's salary.It was an unwritten rule to try and exclude the the woman's salary(if she was working at the time the loan was taken out)-since she would not be a breadwinner if she was later to take a career break to raise a family.
Nobody complained then--and it was rare for people to default on their loans.
- William Grierson, Kimpton-UK, 18/03/2009 18:10
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It should be 30%. If the opportunity is so good, then the buyer will be able to find a second mortgage from someone else who will to take a risk. The rates however, will be far higher for that slice. I am sure that it would be very easy to get a mainstream mortgage for the 70% as those guys would have low valuation risk.
- Coylum, vancouver, Canada, 18/03/2009 18:06
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The last time I looked (3 days ago), there's no such thing as an 85% mortgage so saving up a 15% deposit is irrelevant! The most I can find is a 70% mortgage which on a £300,000 mortgage leaves me to find £90k... what normal person has the ability to conjure up that kind of deposit?!! So until mortgages become more realistic, thenit's only going to get worse.
- Ken, east london, 18/03/2009 17:46
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On a current average price of £196,000 that is £30,000 which added to the possible university graduate's debt of £50,000 will mean I shall have my two children living with me forever!! I pity our children's generation.It's a time bomb waiting to go off!!
- Nigel, London UK, 18/03/2009 17:33
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The problem is so very difficult in the UK because the easy credit policies of the past have created a housing bubble that simply won't go away without a market correction to levels, 3-4 times salary. How will the majority of people raise the deposit.Like it or not, the entire financial system has created so called wealth in housing that doesn't exist. It is only when affordable housing exists, that the financial crisis will be stable.Bear in mind that we have historically low interest rates now, what happens when they go up..look forward a few years. The mess that your prime minister has made of the UK is shocking. I myself don't have a mortgage but there again I live in a cowshead up a mountain and so am clearly an authority on such things !! (Is that the same as up the creek without a paddle)
- Michael, Switzerland, 18/03/2009 17:16
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15% is that all? I have to raise 30%. Do any of these people actually live in the real world?
- Frank, Home Counties, England., 18/03/2009 17:16
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Am I missng something? When I bought my first property I had to have a subsantial deposit which require dme to save. Why is that difficult for people to grasp?
- Ian Gilbertson, Newcastle, 18/03/2009 17:07
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This will force property prices down further. The cost of finance is a contributory factor to house prices. Easy credit contributed to the escalating house prices.
FK, Cpn, DK.
- Frank, Copenhagen, Denmark, 18/03/2009 16:53
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This is great news for first time buyers, it means property prices will crash well over 50% because no one is going to have 15% deposits so if anyone wants to sell they will have to lower their prices in line with what buyers want and can afford. The sooner property prices are in line with the general average of 3-4 times average earnings the sooner we can all get on with our lives. None of this would have happened has this government not allowed and encouraged excessive lending.
- Eloise, London, 18/03/2009 16:37
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What is the point of all this regulation now. Its too late! Have'nt they noticed that all the horses have already bolted. What they need to concentrate on is getting the fianancial system running again not tying it down with more red tape. When will these idiots ever learn? Call an election now!! Please unless you want 3 to 4 million unemployed in 12 months time.
- Nms, London, 18/03/2009 16:33
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Is there a paralell universe somewhere that these guys come from? No it wouldn't have stopped the Rock crash,nor the HBOS debacle. It's like the 'Targets' set by this government for police NHS et all, a way round will be found, and similar to the Tax avoidance schemes by the banks, set up with HMRC's blessing. To stop it you need to be proactive not reactive, and the Revenue, FSa and the public service Auditors can't be proactive asong as they are accepting entertainment from the financial organisations they are meant to be policing. Good lord, how would they get to the opera, wembly or any eatery if they policed the financial institutions properly.
- Alan, carlisle uk, 18/03/2009 16:18
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They should use the Italian system,no easy credit and the system is solid.
- David Nigel Braham, Milan Italy, 18/03/2009 15:35
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