Tuesday, October 22, 2013

Banking on Rent

There are many alarming headlines at the moment.  Most will be over dramatic but often there is no smoke without fire.  I have often talked about the widening gap between rich and poor.  It seems that despite the seeds of recovery starting to show, the gap continues to widen.

London property prices continue to grow at unsustainable rates.
Rents increase at incredible rates
Energy prices are growing at incredible rates
Food prices continue to rise
Transport costs continue to rise (albeit a minor blip reduction in petrol short term)

The news that going to work is not enough to lift many people out of poverty.  This is no surprise given the above.  Given that the poorest people will be in rented accommodation it is no surprise that, as a proportion of income, rent, energy and transport will be a major driver to poverty.

If we now look at reality (not something banks are good at) why can't banks, as a means to assess ability to pay a mortgage use current rental prices as an indicator.  If you are paying £1800 rent a month and have done for say 3 years then is it not ludicrous that you could not get a mortgage that results in the same payment level on the grounds that the person (people) do not earn enough money.

Banks need to change the way they assess for affordability.  Its all well and good saying that a person cannot afford repayments and rejecting a mortgage application but if it results in the person paying greater amounts or even equivalent on dead payments to a landlord then something has gone wrong.  With banks advertising that they are their to help, what IFA would advise you to give rent money to a landlord resulting in no asset over paying the same amount to pay for your own asset.

But asking whether financial advice from a bank is worthwhile may be pointless given how much they struggle to run their own businesses.


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