Joint mortgages should have been stress tested for childcare fees

Dr. Ego

I know the horse has bolted on this one but why were couples jointly assessed for mortgages in the good times ?.
Did the banks no realise that couples tend to buy a home, get married & have a family ?.
Did they honestly expect both parties to work full-time until retirement to fund the huge mortgage ?.
Did they expect constant earnings growth to cancel out the cost of childcare ?.
Perhaps they expected a surge in inflation to lessen the impact.

For a product that relies on a mathematical formula why did nobody add future childcare costs to the stress test ?.
Where full-time creche fees for 2 kids can equal a mortgage it's strange it was never factored in.

phormium

But they did initially, that is why multiples of salary were always once the higher plus half the lower or similar calculation, both full salaries were not taken into account because of these potential changes, either through one spouse ceasing work or childcare costs.

spockety

The bubble was predicated on property values increasing at absurd rates until everyone was a millionaire. Nobody would have any trouble because their capital worth would be so huge. Etc. Etc.

It's why we are in this mess. It was a load of cobblers.

Gandhi

Not to mention the popularity of mortgage-backed derivatives meant that the bank was going to sell your loan to another bank 15 seconds after you'd signed on the dotted line. Whether you could still afford payments in two years time was going to be someone else's problem.

djimi

Surely its up to the buyer to know what they can and cant afford at the end of the day? As in, if a couple with no children are looking to take out a mortgage then they should be factoring in the possibility of circumstances changing such as children coming along and the increased outgoings/possible decreased income that would bring when deciding how much they can afford to repay each month?

Im aware the banks are financial institutions who offer advise on this kind of things etc, but at the end of the noone knows better than the customer themsevels how much they can afford to spend, and its up to them to use their own heads when making that decision, not just blindly grabbing as much as they were being offered.

BostonB

Dr. Ego wrote: »

....
For a product that relies on a mathematical formula why did nobody add future childcare costs to the stress test ?.
Where full-time creche fees for 2 kids can equal a mortgage it's strange it was never factored in.

I remember when it was 3 times one salary + 1 times the other. Which I assume was the reason for this. The problem started when the banks threw out all their own rules. It was that point the regulator should have stepped in to cool the market.

If the people couldn't borrow the money the banks couldn't lend it to them and get into debt themselves.

markpb

djimi wrote: »

Surely its up to the buyer to know what they can and cant afford at the end of the day?

Lots of people took out loans that they now cannot afford but the problems aren't limited to them - the banks that gave out the loans are also in trouble. The banks were bailed out by the government, not the borrowers. If the banks are systemic enough to need to be bailed out, they should be more careful about giving away their money.

djimi

markpb wrote: »

Lots of people took out loans that they now cannot afford but the problems aren't limited to them - the banks that gave out the loans are also in trouble. The banks were bailed out by the government, not the borrowers. If the banks are systemic enough to need to be bailed out, they should be more careful about giving away their money.

Whether or not the banks should have been more careful is not the point of this thread. My arguement is that for me at the end of the day the onus is on the buyer to know how much they can afford to repay. The banks can use whatever criteria they like to determine how much they will give the buyer, but ultimately the responsibility is on the buyer to know if they can afford to take it.

I dont have kids. If I take out a mortgage now that pretty much stretches me to my financial limit and I then start a family, whos fault is it that I can no longer afford the mortgage?

BostonB

It makes no sense for the bank to enter risky deals which fail leaving the bank at a loss.

markpb

djimi wrote: »

Whether or not the banks should have been more careful is not the point of this thread.

It's not!?

My arguement is that for me at the end of the day the onus is on the buyer to know how much they can afford to repay. The banks can use whatever criteria they like to determine how much they will give the buyer, but ultimately the responsibility is on the buyer to know if they can afford to take it.

Both parties take a risk when a loan is given - the borrower has a responsibility to borrow what they can reasonably afford in the long term (including the possibility of having children) and the bank has a responsibility to loan what they think the borrower can afford. There's no point giving money to someone who won't be able to pay it back, saying that they are liable for it doesn't help if they lose their jobs.

And like I said, if the banks are going to be bailed out by the taxpayers, they have even more responsibility to loan responsibly. I make my mortgage repayments faithfully every month, why should I be penalised by the government (as a taxpayer) and the banks (if I had a variable rate mortgage) because the banks gave loans to other people who now can't afford them?