When will bank's tighten lending conditions?

I’m one of those waiting on the sidelines and will consider buying when the prices are at the right level. Yes - I’m one of those naysayers currently causing the bust and should be in buying right now to keep our country’s economy afloat (and yes - that was sarcasm).

Anyway, my concern is that falling prices might coincide with banks tightening-up their lending conditions because of the increased risk some loans have become to them (credit reduction in economic parlance). When do people here think that banks might start to limit mortgage approval and what form might that take?

I’m sure the withdrawal of the ridiculous 100% and interest-only mortgage concotions of our recent excessive times will be a blessing. The amount you can borrow would, I guess, reduce too. But will it become harder to get mortgage approval as well?

I’m self employed for several years, and nice Mr. Bankman will happily give me up to 4.5 times my salary … today. And not from sub-prime lenders either; that’s from the main banks. Could that change drastically and at what point? Does anyone know how the banks lending criteria changed after the last UK crash?

(BTW: Fantastic website. Great to see people with their heads out of the sand addressing the reality of the current situation.)

I would estimate that the banks will trend back to 3-4 times gross income and to 90% of the purchase price and quite possibly 85% but not 100% any more .

I would further estimate that you would get that on a 25-30 year repayment basis and not on a 40 year interest only basis.

The best possible case by this time next year is 95% LTV / 4 x income / 30 year repayment and that because the banks have to carry these loans as they are unable to sell them any more in the securities markets.

In other words we are back to late 1990s early 2000s multiples.

As you may imagine the absence of silly money from banks will have a serious effect on house prices . House prices post 9/11 rose in lockstep with dodgy and unsafe practices in the securitisation markets.

These have dramatically stopped in recent months.

The self-employeed aspect is always a pain in the arse when dealing with banks.

Apart from that bit, the tighter the lending conditions get, the better for you. If banks will only offer 1.5x a salary, for 50% of the house and over 20 years to the wider public, you know what that will do to house prices - and in the long run you’ll end up paying back much less.