The Affordability scam explained

Graham_Devon

CluelessJock wrote: »

I don't know what the average 1st time buyers salary would be in 1991 (ignoring the differences in 1st time buyers age) compared to now, but not convinced it will have tripled, so the deposit may be more difficult to save. Couple this with peoples perception that they need new cars, holidays, designer clothes etc and the deposit has not only to come from a wage that is a lower fraction of the property price, but also one that yields less disposable income.

Oh don't, you'll get Hamish started

Graham_Devon

chucky wrote: »

rates were at 15% for 7 months and were over 14% for nearly 18 months
1 Apr 91 - 13.75
1 Nov 90 - 14.50
1 Mar 90 - 15.40
1 Nov 89 - 14.50

I know, I pointed that out in my post. But you were concentrating on 1991, so I did too

chucky

carolt wrote: »

But:

(a) You're not including MIRAS.

true - i also haven't included wage inflation since 1991

carolt wrote: »

(b) You're not including capital repayment.

i've already said i didn't and that isn't the point of the comparison

carolt wrote: »

(c) You're looking at 1 split second rate, when a mortgage is paid over 25 years or more. Mortgages stayed at 14% (which it wasn't anyway, as MIRAS was taken off) for no more than a couple of months. Today's rates will last for no more than a year or 2 at most of 25. And only apply to those on the 'right' deal - no good if you're on a higher fix, if you're LTV is too high, your SVR too high, etc etc. Trying to base 25 year affordability on 1 month's rate is silly.

no they stayed above 15 for 7 months
they stayed above 14% for over 18 months
they also never went under 10% for the next 2 years
that's a total of 4 years not a couple of months

carolt wrote: »

(d) I can't be bothered to work out your figures, but I'd love to see the source, as you've quoted them before and I'm 99% sure they're made up. Sorry.

you're arguing something that you haven't calculated yourself because you only 'think' it's incorrect.
oh dear, where did you go wrong :rolleyes:

chucky

CluelessJock wrote: »

Exactly chucky, that is precisely why I found it difficult.

As you say the interest rate makes more difference than the property price when comparing the cost of servicing the mortgage.

I don't know what the average 1st time buyers salary would be in 1991 (ignoring the differences in 1st time buyers age) compared to now, but not convinced it will have tripled, so the deposit may be more difficult to save. Couple this with peoples perception that they need new cars, holidays, designer clothes etc and the deposit has not only to come from a wage that is a lower fraction of the property price, but also one that yields less disposable income.

this is my point - some people don't see or understand this and have completely blinkered view of house prices

CluelessJock

chucky wrote:

i've already said i didn't and that isn't the point of the comparison

While I agree the cost of servicing the debt is directly linked to the interest rate the fact that there is 3 times the capital to be repaid cannot be ignored and is very much part of the affordability equation!

Anyway, why is the comparison between the 90's & present day? Interest rates in the 80's were pretty tough to deal with and form part of history whether an individual had a mortgage then or not. Indeed the deregulation of the market in the 80's is largely responsible for the lenders getting creative with the products they offer.

andykn

Graham_Devon wrote: »

Infact, looking at historial mortgage rates, it was 13.75% for one month only, in April 1991. It then reduced to 12.95% then down to 11.5% in a matter of 3 months. .

But such high rates last time were anomalous; caused largely by a greedy govt trying to keep the pound at an artificailly high level against the shadow Euro.

Too many people have too much mortgage debt to allow it to happen again. It's fashionable to think Govts don't listen - they do, just not necessarily to what we as individuals have to say but the lumpen proletariat MEW'd up to the eyes.

And there's Hamish's point that, if things really are as bad as the 30's, look how long interest rates stayed low after that.

Ask yourself, what will push up (mortgage) interest rates much over 6% in the next 5 years?

Graham_Devon

andykn wrote: »

But such high rates last time were anomalous; caused largely by a greedy govt trying to keep the pound at an artificailly high level against the shadow Euro.

And 4.7% SVR's are normal are they?

chucky

Graham_Devon wrote: »

And 4.7% SVR's are normal are they?

from my other example even mortgage rates up to about 7% isn't that bad is it?

mewbie_2

This has got ridiculous. All to prove what - that house prices are reasonable? When anyone without a vested interest knows that they are not. We dont need endless arguments with complex figures to prove the bleeding obvious. House prices are too high, and they will come down because people can't afford them.

Thrugelmir

chucky wrote: »

this is what i am saying

1991 Average House Price = £53,635, 14% Mortgage rate - it was actually a couple of % higher
Interest Repayment was £626 a month on 1991 average salary (however you'd like to calculate it - median, mode, mean)

2009 Average House Price = £154,066 , 4.64% Average SVR
Interest Repayment is £595.72 a month on today's average salary (however you'd like to calculate it - median, mode, mean)
http://www.moneyextra.com/dictionary/interest-rate-history-003455.html

i appreciate that this doesn't include capital repayment - mortgage affordability is better now than the early 1980s and 1990s, buying a house is a different story...

You have to allow for capital repayment to be meaningful.

Have median wages increased in the same ratio as house prices in the same timeframe ? I suspect not, as the average household with a mortgage does not have a household income of £45k in2009 , compared to £15k in 1991.