How do these people get mortgages?

[eyebeebe]

Rather than take a different thread off topic, I thought I'd start a new one here.

Maybe I'm a little bit naive and/or as an expat disconnected from UK personal finance, but I struggle to understand how the people in the anecdotes below ever got a mortgage. Granted we don't know the full story. TL;DR - one is trying to hand back a car because prices are going up, the other can only make monthly mortgage payments due to bonuses.

I had understood that mortgage applications were stress tested to see if you could still afford it if the rates went to 4%. They are still well under that and forecast to remain so. Do some people live like hermits or something for the period upon which their application is built and then go wild once they've got the mortgage? Surely if they do that they are screwed come renewal time and end up on SVR as they don't pass the stress test for a new mortgage?

Jamescrs said:

Lord Marylebone said:

I think now, more than ever, we have people buying all sorts of luxury items that they can’t really afford.

Many people choose to run their lives with absolutely zero room for financial error. Biggest mortgage/rent they can afford, his ‘n’ hers financed Land Rover and Merc on the drive, credit card debt, sofas from DFS on 4 year payment plan, TV on finance, carpets on finance, new kitchen on finance, iPad iPhone and MacBook on Apple finance, next holiday stuck on the credit card.

Something like 1/3rd of all adults in the UK have less than £500 in their bank as savings or for emergencies. Probably worse is the statistic that around 45% of UK adults ‘could not survive’ one whole month without their salary if they lost their job or something like that happened.

Yet these are the people you will see wearing Armani, Gucci, D&G, Tiffany, Hermes, and a Rolex, often purchased from the likes of Watchfinder on finance.

A truly worrying percentage of people in the UK who appear to be living the good life, could not manage to ride out a storm of bigger household bills and increasing interest rates.

I was speaking to a bloke the other day who was telling me he was trying to hand back his Audi SQ5 V6 because ‘everything is going up in price’ they couldn’t afford the petrol for it. He’s exactly the type I’m talking about. Wife has an Evoque, they have a 4 bed newbuild house on an ‘executive development’, and both have a Datejust, yet they are now stting themselves because household bills have crept up a little.

I undoubtedly sound like a broken record, but I genuinely worry for our country when so many peoples lives are on a financial knife edge all the time.

Governments will do all they can to prevent a financial crisis for the population, but with so many people completely maxed out, there’s only so much they can do.

Edited by Lord Marylebone on Monday 24th January 22:00

I am seeing more and more people I work with in a similar position now

The area I work in is stable and as immune from a financial crash as anyone can be so redundancy is never realistically going to happen but I have colleagues now relying on overtime just to get through the month.

I know one woman I work with who has just bought a 4 bed executive type house as a new build and I know what she earns and she openly admits the only way she can afford it is relying on her husbands continued bonuses to pay her mortgage and knowing what he does in a recession I'm pretty sure they would be deep in trouble very quickly bit they are trying to maintain a certain lifestyle to keep up with their friends perceived lifestyle.

I find it scary how people live like that.

Anyway back to the Rolex bubble.

[GT03ROB]

Do you think they are honest about their expenditure?

[Jamescrs]

Just hopping into this thread, thanks to the OP for creating it.

Honestly I don't know if they are honest about their income or how they lay it up in a mortgage application, I know on my recent remortgage (I say recent probably 18 months ago) the broker asked about overtime and other bonuses so I guess there is a way for a broker to put it forward to lenders but I have always worked on the base salary I receive personally. I'm sure others must have a different view

[S17Thumper]

Jamescrs said:

Just hopping into this thread, thanks to the OP for creating it.

Honestly I don't know if they are honest about their income or how they lay it up in a mortgage application, I know on my recent remortgage (I say recent probably 18 months ago) the broker asked about overtime and other bonuses so I guess there is a way for a broker to put it forward to lenders but I have always worked on the base salary I receive personally. I'm sure others must have a different view

When we last got a mortgage the broker suggested considering some lenders over others as they considered a third, or half of by bonus income over the last x years. We were borrowing well below the limit so it didnt really matter, but for some people in certain jobs I imagine it would be crucial.

[sunbeam alpine]

This isn't a new phenomenon. I've been living out of the UK since 1996, and I rent out my UK house. I use a local handyman for all repairs as if I use the rental agents official firms they charge a lot more. The handyman does brilliant work but never has enough money to buy larger items, so he would go to his supplier and I used to pay with my bank card over the phone.

In the late '90's this stopped working (I think fraud controls) so I phoned one of my best friends who lives in the same street (and still does) and asked him to give the handyman £300 so he could get what he needed. I would transfer him the money from my UK account (I don't think there was internet banking back then) so it would take a few days.

I was absolutely staggered when my friend said he couldn't do it - he didn't have £300 spare. At first I thought he was joking - they had the nice house, cars, holidays etc. - but he genuinely didn't have it.

[eliot]

sunbeam alpine said:

I was absolutely staggered when my friend said he couldn't do it - he didn't have £300 spare. At first I thought he was joking - they had the nice house, cars, holidays etc. - but he genuinely didn't have it.

Or perhaps he was politely telling you to pay up front for materials rather than use his own money.

[anonymous-user]

eliot said:

sunbeam alpine said:

I was absolutely staggered when my friend said he couldn't do it - he didn't have £300 spare. At first I thought he was joking - they had the nice house, cars, holidays etc. - but he genuinely didn't have it.

Or perhaps he was politely telling you to pay up front for materials rather than use his own money.

Read it again.

He isn't asking the handyman to front £300 for materials.

He's asking a longstanding friend to give the handyman £300 cash, and he would send the friend £300 straight over via bank transfer.

[dundarach]

sunbeam alpine said:

This isn't a new phenomenon. I've been living out of the UK since 1996, and I rent out my UK house. I use a local handyman for all repairs as if I use the rental agents official firms they charge a lot more. The handyman does brilliant work but never has enough money to buy larger items, so he would go to his supplier and I used to pay with my bank card over the phone.

In the late '90's this stopped working (I think fraud controls) so I phoned one of my best friends who lives in the same street (and still does) and asked him to give the handyman £300 so he could get what he needed. I would transfer him the money from my UK account (I don't think there was internet banking back then) so it would take a few days.

I was absolutely staggered when my friend said he couldn't do it - he didn't have £300 spare. At first I thought he was joking - they had the nice house, cars, holidays etc. - but he genuinely didn't have it.

Eh?

I've enough assets, however I don't have a spare £300 in easily accessible funds, right now, without buggering around...

I've £300 but if you didn't give me it back today, I'd have to mess around later transferring and such like.

I'd be shocked if this wasn't common.

(not on here naturally enough, everyone else carried £500 nicker around with them )

[av185]

Nothing new really as we move to an increasingly subscriptive economy but definitely an increase in those who live for the here and now never ending debt cycle pcp type over leveraged lifestyle with the usual crappy trinket Evoque type cars (invariably with illegal crappy Chavplates for further bonus points lol) on the drive in a vain attempt to try and impress the neighbours.

These folks invariably have no money for food in the fridge and cannot even afford fuel to run their cars but they don't seem at all bothered as invariably they are simply concerned with trying to impress others.

Yep they may be able to a mortgage and buy a new build they really cannot afford but what they won't tell you is the excessively high rate of interest they are paying. Not that they would actually be concerned or probably even understand APR as is the case with many PCPers especially for used cars.

Excess debt and living beyond ones means once rightly attracted shame and a social stigma not that many years ago but it is now unfortunately seen by many as a badge of honour. Excess debt is now seen as almost being cool ever since one of the greatest of marketing coups was pulled of this being the naming of the debit card as a credit card and the associated glamorous 'lifestyle' it automatically brings with it.

[deckster]

Lord Marylebone said:

eliot said:

sunbeam alpine said:

I was absolutely staggered when my friend said he couldn't do it - he didn't have £300 spare. At first I thought he was joking - they had the nice house, cars, holidays etc. - but he genuinely didn't have it.

Or perhaps he was politely telling you to pay up front for materials rather than use his own money.

Read it again.

He isn't asking the handyman to front £300 for materials.

He's asking a longstanding friend to give the handyman £300 cash, and he would send the friend £300 straight over via bank transfer.

Which sounds reasonable, to an extent. But I couldn't do it. I don't keep cash in the house, and my bank account has a £250 daily limit on withdrawals.

[super7]

av185 said:

Nothing new really as we move to an increasingly subscriptive economy but definitely an increase in those who live for the here and now never ending debt cycle pcp type over leveraged lifestyle with the usual crappy trinket Evoque type cars (invariably with illegal crappy Chavplates for further bonus points lol) on the drive in a vain attempt to try and impress the neighbours.

These folks invariably have no money for food in the fridge and cannot even afford fuel to run their cars but they don't seem at all bothered as invariably they are simply concerned with trying to impress others.

Yep they may be able to a mortgage and buy a new build they really cannot afford but what they won't tell you is the excessively high rate of interest they are paying. Not that they would actually be concerned or probably even understand APR as is the case with many PCPers especially for used cars.

Excess debt and living beyond ones means once rightly attracted shame and a social stigma not that many years ago but it is now unfortunately seen by many as a badge of honour. Excess debt is now seen as almost being cool ever since one of the greatest of marketing coups was pulled of this being the naming of the debit card as a credit card and the associated glamorous 'lifestyle' it automatically brings with it.

Surely the Debit Card was an extension of Credit card? Not the other way around.... Debit cards only became available in the late 80's when the Mainframe networks started having online PDQ's?

Before that, you had a thing called a Cheque Guarantee Card and a Cheque Book and your Credit Card was run through a manual machine which you had to sign for an you had pockets full of carbon copies???

[xeny]

dundarach said:

(not on here naturally enough, everyone else carried £500 nicker around with them )

Not on me (people are too reluctant to take £50s and in £20s it is a bit thick for a wallet) but handy certainly.

[av185]

super7 said:

Surely the Debit Card was an extension of Credit card? Not the other way around.... Debit cards only became available in the late 80's when the Mainframe networks started having online PDQ's?

Typo sorry meant Credit card actually being a DEBT card.

[eyebeebe]

I'm more interested in the mechanics of it than the sociology, living for the moment, PCP'd up to the eyeballs comments, life-affirming as they are

Because...

GT03ROB said:

Do you think they are honest about their expenditure?

I thought from reading threads on here that you had to fully open your financial kimono so to speak when applying - bank records going back however long, history of variable income etc.

[GT03ROB]

sunbeam alpine said:

In the late '90's this stopped working (I think fraud controls) so I phoned one of my best friends who lives in the same street (and still does) and asked him to give the handyman £300 so he could get what he needed. I would transfer him the money from my UK account (I don't think there was internet banking back then) so it would take a few days.

I was absolutely staggered when my friend said he couldn't do it - he didn't have £300 spare. At first I thought he was joking - they had the nice house, cars, holidays etc. - but he genuinely didn't have it.

Unless this was a long standing arrangement, I think I'd be inclined to refuse as well, having the money or not. Lending money to mates certainly more than a few quid is a recipe for a fall out.

[eyebeebe]

Jon39 said:

OP - Do you remember 2007/2008 ?

- Providers fighting to compete for mortgage borrowers.
- 'Liar Loans' as they became known. Using mortgage intermediaries, you put forward any salary figure you like on the application form and nobody checked.
- Interest only. Far lower monthly payments and you can worry about how to repay the capital later.

One lender, which had recently become a listed company, managed to obtain 25% of all new mortgage business !

Expect you probably know what happened next.

If overstretching is occurring now, perhaps there might be trouble ahead.
Often there can be a sense of economic difficulty looming, but it is the timing of sudden trouble which cannot be forecast.
People then say, "Oh, I didn't expect that". -


EDIT - I have just read more of this topic (with horror).
I am very fortunately, because I was brought up to always save 10% of my pay and wait to buy stuff for cash. Only ever borrowed to buy homes.
It is a strategy which definitely works (although need to ignore all the very persuasive marketing), because I never need to worry now about any bills etc.

I use mobile phones and all the useful gadgets, but have not owned each successive model Apple phone. Have I missed out by not doing that ?

Edited by Jon39 on Tuesday 25th January 12:22

Yes, I remember it well. I started working in Investment Banking (sadly for my bank account not in the front office) in March 2007, so I was very close to the action as it unfolded. I now work in Private Banking in a much more fiscally conservative country*, hence why I'm asking what I'm missing. It also concerns me for the UK that the regulations put in place to protect the public from themselves seem to be able to be swerved.

• outside of car finance, consumer lending is rare. Mortgages need a 20% deposit and the combination of interest calculated at 5% (10 year fixes available at sub 1%), 1% amortisation and 1% annual maintenance can't be more than a third of your income. Conversely once you have paid the LTV down to 65% the loan becomes interest only.

[Sarnie]

As a mortgage broker, by far the most common question I get asked is;

"Whats the most I can borrow?".........

Most people then use that maximum figure as the actual figure they are going to take out........

[NuckyThompson]

I think there’s plenty of people who live that ‘keeping up with the joneses’ lifestyle. I know people in my industry who are probably buying houses at the limit of what mortgage lenders will give them, smashing in the overtime in the months building up to applying. (Can double your monthly take home quite easily if you want)

Some of these will then have anywhere from a £20K-£60k car on finance.

Funnily enough though we have a fairly big house probably worth more than what most of people would expect we could afford. Some probably believe we are mortgaged to our eyeballs (we’re not we’re probably 33% LTV) I had a 25% deposit 10 years ago when starting out and overpaid nearly double the mortgage every month and have upgraded houses twice since but I’d say if you asked some of my colleagues they’d assume we’ve done what you’re suggesting.

For the most part though I’d say there’s plenty of people doing it though, and no lessons have been learned from 2008

[Jon39]

REVISED EDIT

OP - Do you remember 2007/2008 ?

- Providers fighting to compete for mortgage borrowers.
- 'Liar Loans' as they became known. Using mortgage intermediaries, you put forward any salary figure you like on the application form and nobody checked.
- Interest only. Far lower monthly payments and you can worry about how to repay the capital later.

One lender, which had recently become a listed company, managed to obtain 25% of all new mortgage business !

Expect you probably know what happened next.

If overstretching is occurring now, perhaps there might be trouble ahead.
Often there can be a sense of economic difficulty looming, but it is the timing of sudden trouble which cannot be forecast.
People then say, "Oh, I didn't expect that". -


- I have just read more of this topic (with horror).
I am very fortunately, because I was brought up to always save 10% of my pay and also wait to buy stuff for cash. Only ever borrowed to buy homes.
It is a strategy which definitely has rewards (although need to ignore all the very persuasive marketing), because I never now to worry now about any bills etc.

I use mobile phones and all the useful gadgets, but have not owned each successive model Apple phone. Have I missed out by not doing that ?

I do make full use of credit cards, because they provide purchase protection and automatically give a cashback bonus once a year. Have to pay the full balance every month though, otherwise it could so easily become an expensive, tempting 'slippery slope'.

[46and2]

Sarnie said:

As a mortgage broker, by far the most common question I get asked is;

"Whats the most I can borrow?".........

Most people then use that maximum figure as the actual figure they are going to take out........

Many threads/postd over the last year would have said that was sound advice due to low interest rates and rising house prices. Not my own opinion I will add.