... Mr Brown said the Financial Services Authority would be considering controls on mortgages of more than 100% of a home's value, and so-called high multiple mortgages offering loans of up to six times an applicant's salary.
So 100% loans are bad
Chancellor Alistair Darling also suggested that some mortgages would be lent at up to 90% of the value of the property being bought.
But 90% loans are good. It's all fairly straight forward isn't it? That 10% obviously makes all the difference.
Hang on, lets just think about this.
100% LTV in 2006. In the year 2006-2007 average property prices rose 17% so lets take the hypothetical £100,000 house...
2006: mortgage balance £100,000, property value £100,000
2007: mortgage balance £100,000, property value £117,000
Loan to value: 85.4% - According to Gordon Brown, this is not prudent
90% LTV in 2009. In the last year property prices have fallen 17% (http://news.bbc.co.uk/1/hi/business/7911735.stm) and Mr Darling is urging banks to lend to 90%.
2009: mortgage balance £90,000, property value £100,000
2010: mortgage balance £90,000, property value £83,000
Loan to value: 108.4% - Is this prudent?
Now I really hope we don't see another 17% fall in property prices over the next year, but I think this illustrates my point. For the Government to suggest that lending 100% in the good times was not prudent but lending 90% in the current climate is suggesting Gordon Brown is either:
- Stupid and has very bad advisers
- Only made these comments for spin
Personally I don't believe point one for a second.
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