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FTBs only have to wait for prices to fall

Over recent weeks it’s been interesting to watch the debate in respect of the stuttering housing market and specifically the paucity of first-time buyers.

Typically for this point in the cycle, much of the focus has been on whether lenders should base their calculations on higher income multiples to give the first timers more purchasing power. This is seen by many as the injection needed to resuscitate the patient. But it’s the wrong medicine and it makes no sense.

In enlightened circles, racking up the amount lent on the basis of some arbitrary number went out with the Ark. And anyway, increasing lending multiples only really raises the property price plateau which does nobody any favours.

I’m amazed this is always treated as though it’s a new phenomenon. I’ve been involved with housing and mortgages for over 30 years and it’s always been thus. What’s the big deal? First-time buyers don’t want to borrow more money. They may feel they temporarily need to but if they are patient property prices will drop back towards them and they won’t have to. That’s the beauty of supply and demand.

Increasing lending multiples is not the answer. So what is? Most informed lenders now base lending decisions on affordability, which is the only sensible way to go. It’s always struck me as ludicrous that two mortgage applicants, each earning the same, should be treated the same irrespective of their lifestyles. How can a married applicant who supports a family, runs two cars and smokes heavily possibly have the same amount of income available for mortgage purposes as does a single applicant with no dependents or vices? Treating them as equals is nuts.

But having established the affordability figure, why are we so fixated on 25-year terms? No mortgage ever lasts that long so why use it as the standard?

A home buyer starting at age 25 is likely to move within five years and then again in another five. And they will probably take a 25-year mortgage each time. That’s a liability that will be serviced over 35 years so why not set this as the initial term? It would make affordability easier.

A longer term substantially increases the cost of the loan and goes against the trend of people wanting to clear their mortgages as soon as possible. But many home owners are like Catherine Tate – they’re not bothered. And for those in this category a longer term would significantly reduce their monthly mortgage payment.

But do we really need to do anything at all? This market stutter is, after all, only business as usual. Ignore it. It’ll sort itself out. peter mounty


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