House Prices, Interest Rates and Affordability

Turnbull2000

!!!!!!_face wrote: »

Yeah, I think there is a grain of truth in what you say here.

Banks won't loan greater than 75% of a property's supposed value without punitive interest rates and associated charges. This is a fact. Why are the banks doing this? They are pricing RISK into their business model.

Yes, they are pricing in the strong possibility of 25% drop in prices... they're happy to risk your money, not theirs.

Affordability is highly subjective. For example, house prices could be allowed to go up forever if only there were 30, 40, 50 year mortgages, etc... on top of 10x, 15x, 20x salaries, etc... and increasingly negative real interest rates, etc...

But this is the hook: the UK has deviated so far from the norm that corrective action shall occur, and in fact BEGAN to occur only to be apparently curtailed due to heavy-handed government intervention and inordinate low volumes of property changing hands.

@marc-h, you may want to consider what was published today on ThisIsMoney regarding affordability:


Happy days! :eek:

That's why rates won't rise much for the foreseeable future. The threat to the housing market is too great.

phil_b_2

Turnbull2000 wrote: »

That's why rates won't rise much for the foreseeable future. The threat to the housing market is too great.

Hopefully not until at least aug 2011 so I can remortage on a nice long low fix :eek:

marc-h_2

mbga9pgf wrote: »

So what do you say to the fact that my wife and I have been saving for over 4 years, have a deposit that is 2 times my salary, yet I still cannot afford the home my parents bought when they first got married (after saving for 1 year)? We have been saving 80% of takehome by the way.

When you consider my father was not earning a realative income anywhere near mine, my mother stayed at home to bring us up and we are planning to get a mortgage on 2 incomes (nice to be able to actually HAVE kids, never mind, I will leave that to the chavette scum), its easy to see you are talking complete and utter hoop.

Maybe the differences across the country are huge. I bought my first house age 20 with my GF when at Uni using my Student Loan and some of my GFs savings as a deposit. We sold that after 3 years and bought our next home with the deposit coming from the savings we had accrued when I started working after I left Uni. At this point we were offered a mortgage of about 185k but didn't get one that big. I have a job that pays well below average and my now Wife considerably less than that. We now live in an above average area of our city in a larger than average 3 bed semi. We are now looking at moving again but aren't in a rush.

Perhaps the wages to house price comparison varies even more than I imagined across the country or people have different expectations. That's the only explanation I can come up with.

silvercar

I overheard in the bank today. A guy mid twenties (looked like he was probably in a not-much-more -than-min-wage job) querying his bank statement with the CA. He thought his Sky TV payment had gone out twice, £68.50 showing twice on his statement. Turned out his mortgage was a tracker at 1%. So that one of the payments was for his mortgage. £68.50 on 1% IO would be £82.2k mortgage.

Seems apt for this thread. (a) Sky package - I guess multiroom , HD, all the channels etc at that price - is an essential, no doubt with the flat screens to go with it. (b) his mortgage payment = his sky bill, and we worry about affordability!

That size mortgage could be a couple, both burger !!!!!!.

Graham_Devon

phil_b wrote: »

the avergae house to me is a 3-bed semi. It's not a 6-bed mansion but not a 2-bed terrace or one bed flat either.
The average 3-bed semi will be a family household accomodating more than one adult paying the mortgage.

All if's, but's and maybe's but most assumption are.

And the problem with this assumption is that another assumption thats missed is if this is the average household, then they will have children.

Children either require looking after by a parent, or looking after via paid services (babysitters, creches, etc).

And this is where the 2 people earning a wage thing falls completely. It's either going to have to be one person bringing in a wage, and maybe, at a push, another bringing in a part time wage. Or both bringing in a wage, but avery large percentage of those wages paying for childcare.

Please think of the children

marc-h_2

After reading what people have said I still think pretty much the same. If people can afford the mortgage repayments they will commit to mortgages that at current rates will take up about 1/3 to 1/2 their monthly income. House prices will reflect this. People on the lowest wages will get the cheapest house and the level of mortgage they are offered will determine over time the price of these houses. People need to get used to interest rates of 10% again for prices to come back down.

LydiaJ

princeofpounds wrote: »

The second needs the OP to consider more than the initial year (a common fault of people who treat financing as a static issue, and most do). The period of 'stress payments' is typically much more protracted in a low interest rate economy. Every year, you pay a % of the principal amount as your mortgage interest. The principal stays the same in nominal terms, but it gets eaten away in real terms by inflation.

If I could thank princeofpounds's post several times, I would. I think it's a really clear explanation of several points that most people miss. The whole thing's great, but it's long so I'm only quoting the bit I want to comment on, which is to add that there's an article and associated graph that explain this point in more detail and with more examples.

Graham_Devon wrote: »

And the problem with this assumption is that another assumption thats missed is if this is the average household, then they will have children.

Children either require looking after by a parent, or looking after via paid services (babysitters, creches, etc).

And this is where the 2 people earning a wage thing falls completely. It's either going to have to be one person bringing in a wage, and maybe, at a push, another bringing in a part time wage. Or both bringing in a wage, but avery large percentage of those wages paying for childcare.

Please think of the children

Good point, Graham. In every other sphere of life, everyone is well aware that demographics are changing, and that an increasing number of households (of all socioeconomic classes) do not have two adults. As soon as it comes to HP, however, it's immediately assumed that everyone lives in couples, couples always stay together, everyone can work full time, and children are free to look after. Yeah right. :huh:

phil_b_2

Graham_Devon wrote: »

And the problem with this assumption is that another assumption thats missed is if this is the average household, then they will have children.

Children either require looking after by a parent, or looking after via paid services (babysitters, creches, etc).

And this is where the 2 people earning a wage thing falls completely. It's either going to have to be one person bringing in a wage, and maybe, at a push, another bringing in a part time wage. Or both bringing in a wage, but avery large percentage of those wages paying for childcare.

Please think of the children

True, I cant really disagree there.

I suppose though that a couple with children will generally 'go without' when it comes to other things and spend quite a lot less on luxuries to counter that.
A couple without kids might be spending that saved cash on car loans, clothes, holidays, nice furnishings etc.

kriss_boy

My dad was on a decent wage when he entered the work place and bought a flat that was 2.5x his income.

Fast forward 30 years and my FTB whilst in a better paid job than his once was cost me 6x.

House prices will continue to fall because you have young couples like my girlfriend and I who are on good wages for our age and career stages yet we couldnt dream of buying the kinds of properties our parents own.

Take a look around, if people like us cannot begin to think about buying those properties then what proportion can?

People are settling down later and to me that alone fundamentally stands to jeopardise house prices.

marc-h_2

kriss_boy wrote: »

My dad was on a decent wage when he entered the work place and bought a flat that was 2.5x his income.

Fast forward 30 years and my FTB whilst in a better paid job than his once was cost me 6x.

What about the monthly mortgage payment as a % of monthly income?