Would affordability really be any different if house prices dropped?

the_ash_and_the_oak

Agree w the original poster on this thread. The assumption that falling prices would mean increased affordability is flawed imo. Either houses are cheap but the money to borrow for them is expensive, or houses are expensive because the money to borrow for them is cheap - the irony is that it is when houses are expensive that more people buy them

chucky

the_ash_and_the_oak wrote: »

Agree w the original poster on this thread. The assumption that falling prices would mean increased affordability is flawed imo. Either houses are cheap but the money to borrow for them is expensive, or houses are expensive because the money to borrow for them is cheap - the irony is that it is when houses are expensive that more people buy them

been saying exactly this for months and months - all those average earnings against average house price charts don't really hold water because they don't factor in interest rates and the actual cost of buying an average house at that particualr point in time.

for example 1996 was the cheapest point to buy an average house - start of the HPI cycle with low interest rates.

the_ash_and_the_oak

chucky wrote: »

been saying exactly this for months and months - all those average earnings and against average house price charts don't really hold water because they don't factor in interest rates and the actual cost of buying an average house at that particualr point in time.

for example 1996 was the cheapest point to buy an average house - start of the HPI cycle with low interest rates.

I have also never said different.

Disagree the average wage stuff has no relevance tho - the rate borrowed at is likely to be for a relatively short period of time (in which little capital is really paid off) whereas the purchase price is a fixed amount

chucky

the_ash_and_the_oak wrote: »

I have also never said different.

Disagree the average wage stuff has no relevance tho - the rate borrowed at is likely to be for a relatively short period of time (in which little capital is really paid off) whereas the purchase price is a fixed amount

i didn't really express that too well - average wage does and is the important factor.

i was trying to say that exclusively comparing average house prices vs average salary is too one dimensional.

it should be cost of the average house price vs average wage

regarding the rate - yes and no. cost of buying at 10% is very different to buying at 5%. it gives a better understanding of afforability at that time.

PasturesNew

it is better to owe less at a higher interest rate, than to owe more at a low one.

If you borrow £50k for a house, ultimately you only have to find £50k to pay that initial mortgage off - which is achievable for most people over say 10 years.

If you borrow £250k then you have a HUGE amount to find to pay off ... probably achievable only by the lucky over 25 years.

the_ash_and_the_oak

PasturesNew wrote: »

it is better to owe less at a higher interest rate, than to owe more at a low one.

If you borrow £50k for a house, ultimately you only have to find £50k to pay that initial mortgage off - which is achievable for most people over say 10 years.

If you borrow £250k then you have a HUGE amount to find to pay off ... probably achievable only by the lucky over 25 years.

Broadly agree w this - tho not quite in the same way. More that if I borrow at a high interest rate I'm taking a punt on them being lower than this on average for the majority of the debt. If i borrow at a low interest rate I'm taking a risk that they'll be higher for the majority of the debt

LittleMissAspie

You will need to remortgage at some point. So while the FTB is borrowing his 80k at 7% in two years time, you are remortgaging your remaining 95k at 7%.

Thrugelmir

phil_b wrote: »

Lets say we can now get a rate of 5%. On interest only, borrowing 100k for a house would be approx £416 per month.

I'm probably missing something obvious ?

Um yes. A mortgage needs a repayment vehicle. Interest only loans are rapidly disappearing from the market.

On an interest rate of 8% your mortgage interest would rise to £666 per month. Or increase of a net £3,000 per annum. Might as well rent on a long term contract.

mbga9pgf

Higher IRs = Higher inflation which usually = higher wage inflation therefore debt erosion.

Plus, I will have over 40% deposit by christmas. Any price falls will significantly increase affordability for me.

Thrugelmir

mbga9pgf wrote: »

Higher IRs = Higher inflation [STRIKE]which usually [/STRIKE]= which isn't going to be matched by higher wage inflation therefore no debt erosion .

Unlike previous recessions this is going to be a difficult period.