surviving the recession

The Financial Services Authority has drawn up proposals that may restrict how much people can borrow on mortgages - they plan to ban 100% mortgages (i.e. mortgages with no deposits) and to cap the multiples of income you can borrow (they will probably cap this at 4 times income).

All of this will affect those who wish to buy for the first time, and will affect thsoe who wish to re-mortgage, especially as house prices are falling, which is raising the loan to value. If you are a first-time buyer, the only answer is to save ferociously. the more you can deposit, the lower the loan you will have to take out and the better the rate you will get. For re-mortgagees, the only answer is to overpay their mortgage as much as possible to reduce the loan to value, and also the multiple of income that you wish to remortgage at.

It’s a race against time for remortgagees. Low interest rates should last till about 2010, but house prices are continuing to fall. Therefore they must overpay their mortgages faster than house prices are falling, so that they can remortgage in 2010 to lock in low fixed rates before bank base rates rise. There is a silver lining: you have to repay your loan at some point, so overpaying now will save you thousands in interest payments in the future. If people make the most of current conditions, they could end up in future in a sweet situation where their loans and thus their repayments are negligible amounts.

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