What do you think?

julieq

And aaarggghhh, overpayments into a falling market are very dangerous, you're investing cash into a declining asset when you could be investing it elsewhere. Offset by all means or look for less risky investments than housing so you can choose remortgage when you want to without worrying about LTV, but sinking cash into your house is saying goodbye to your cash at the time you may well need it most. If the worst happens, 20K in cash will keep you afloat for a while, £20K in a house becoming £18K and £16K in a couple of years and possibly still negative equity helps you not a jot if you're repossessed.

lostinrates

julieq wrote: »

And aaarggghhh, overpayments into a falling market are very dangerous, you're investing cash into a declining asset when you could be investing it elsewhere. Offset by all means or look for less risky investments than housing so you can choose remortgage when you want to without worrying about LTV, but sinking cash into your house is saying goodbye to your cash at the time you may well need it most. If the worst happens, 20K in cash will keep you afloat for a while, £20K in a house becoming £18K and £16K in a couple of years and possibly still negative equity helps you not a jot if you're repossessed.

I don't dispute this at all, and there is some 'simple'savings schemes where you could save to better effect, I agree, and on reflection I'd clarify that I'd continue to save.
I don't think the OP suggests meetin payments is hard, on the contrary expressing desire to 'move up'.

Edale

The 3 x 3% doesn't add up, if you have someone on £33,333K salary with house price at 100K. Salary increases 3% or £1000. Salary £34,333 and house price at 3 times salary is £103,000 or a 3% increase.

ukcarper

you are all using to much logic houses prices in the early 70s house prices doubled with low multiple mortages. the price rise was well ahead of wage increases

nickmason

Julie, you seem to speak with great authority - but lots of what you say strikes me as wrong. Forgive me for going forensic here, but ...

julieq wrote: »

Of course it works. There is an annual structural riser in house price inflation of 3x salary increase,

What does this mean? It strikes me as technical gobbledegook.

unless the supply of mortgages is restricted via other criteria. At some point as prices drop and confidence increases people pick up on affordability and compete at the top of their range,

what's the "top of their range" got to do with it?

which is what triggers booms. It didn't actually take that long for the losses in the 1990s to be reversed.

It's not anything remotely close to being a Ponzi scheme in that we've agreed (or at least I think we have) that a 3x/2.5x annual income leads to affordable repayments that are a small proportion of GDP - an individual will earn 40x their average annual income during their lifetime, so the amount of the loan is relatively small.

If you accept that, you accept that there is enough headroom in the economy to take up the 3x income riser in house prices. Otherwise you're arguing for restrictions on mortgage provision which are far more stringent than 3x.

I don't think this explanation is valid at all - the "ponzi" scheme in question is the idea that house prices can outgrow salaries indefinitely. It is unsustainable in the long run for house prices to go up by 9% and salaries go up by 3% every year.

The point you miss is that housing is not a discretionary purchase or an arbitrary investment. Everyone needs somewhere to live and there is a strong emotional engagement in where you live that triggers irrationality. You can either pay rent (in which case there's a steady income for landlords and a reason for the BTL market to remain bouyant) or you can buy a house, in which case you'll stretch to buy the nicest place you can afford.

ignoring irrationality , the point is that people don't need a fixed amount of housing. Their demand is variable; how many receptions, how many beds for children, how long does a young adult stay with parents, do you take in the grandparents etc. Not to mention reducing the number of properties that people own. And of course there are students deciding whether they will turn the sitting room into a bedroom, etc. So if the bubble is deflating, people aren't going to buy the nicest place you can afford.

zappahey

julieq wrote: »

Incidentally, a 3x multiple builds in 9x inflation into pricing. At 3% average salary increase a year, that's a 9% house price inflation riser even on a capped mortgage.

Would it be fair to say that arithmetic is not your strong point?

If salaries go up 3%, then the available mortgage (at 3x salary) also rises by 3%.


Salary = £30000
3x Mortgage = £90000

Salary + 3% = £30900
3x mortgage = £92700

Mortage difference = £2700/£90000 = 3%

Kenny4315

PH1LL wrote: »

Our flat was valued at £130k in aug 2007.Phill

go and get it valued ? I expect the bottom of the market to be around 35% from peak. August 2007 is about the peak, and assuming you paid the market price not above or below, I'd expect the bottom value to be reached on your place at about £85k. Assuming similar condition now against when you bought. If a 3 X salary cap were strictly enforced, I'd expect the market would correct by more than 35% probably around to 55% as BTL guys seeking long term growth called in there chips, and bank regs kept the market subdued over a long period, and as equity release (Neg Eq) from house sales prevent upward movement in the chain.

So in this case around around £58k