The time-bomb ticking under Britain's house prices

Losing_the_way

Could we agree that interest rates were lowered to increase peoples disposable income though lowering their borrowing costs.

If we can accept that, then surely it's not hard to understand that when the opposite occurs it's going to decrease their disposable income and make them feel poorer.

Someone please explain if this isn't the case.

DervProf

Losing_the_way wrote: »

Could we agree that interest rates were lowered to increase peoples disposable income though lowering their borrowing costs.

If we can accept that, then surely it's not hard to understand that when the opposite occurs it's going to decrease their disposable income and make them feel poorer.

Someone please explain if this isn't the case.

Lower interest rates will lead to an increase in disposable income for those who have debt. However, there are a few things to consider. If the banks don't pass on lower base rates (assuming you are talking about base rates), then it won't make much difference to disposable income. In fact, it's arguable that low interest rates can lead to an increase in inflation, pushing up costs other than that of paying off debt - so for those without debt, or those with small debts and savings, lower interest rates will almost certainly lead to lower disposable income.

Graham_Devon

The average mortgage vs income statistics are what they are.

However, they either miss a large part of the market, or the figures are skewed.

Reason being, self certification.

Almost half of all mortgages approved between 2007 and 2010 were self certification mortgages. Easily enough to skew statistics. The income is not verified, therefore, any statistic stating that mortgages are X times income is flawed. The income could be, and has been (as widely known) exaggerated.

Either the figures being banded around don't include self certs...therefore they are fundamentally flawed. Or, they do include self certs, and therefore, are fundamentally flawed.

We haven't really got anything else to go on, I understand that. However, the statistics shouldn't be relied on too much to give an accurate representation of peoples income vs house prices.

I can only imagine the actualy complied figures provide a rosier picture than the actual truth.

DervProf

Graham_Devon wrote: »

Almost half of all mortgages approved between 2007 and 2010 were self certification mortgages. Easily enough to skew statistics. The income is not verified, therefore, any statistic stating that mortgages are X times income is flawed. The income could be, and has been (as widely known) exaggerated.

Good point Graham.

And although the number of mortgage approvals were way lower than before the credit crunch, that's still a lot of mortgages issued based on what the borrower says they earn.

Graham_Devon

DervProf wrote: »

Good point Graham.

And although the number of mortgage approvals were way lower than before the credit crunch, that's still a lot of mortgages issued based on what the borrower says they earn.

I'm just waiting for the answer .... "But most were not self certification mortgages".

Seems to be a theme of that at the moment. Look at a number, say it's not most, and call the person a doom monger for suggesting theres an issue.

DervProf

I'll also point out that some will say "many of those self certs will be fine, and not based on high multiples". I won't disagree with that, but I still am uneasy with the whole idea of people not having to provide solid proof of income. "But what about the self-employed, or people that have not been in a job for a few years ?". Tough ! If I were lending money to someone, I'd want clear evidence of their earning record, not just what they tell me they're earning or likely to earn. Self cert is too open to "creative accounting".

Graham_Devon

The whole average income to multiples is flawed anyway.

Income is reducing

Losing_the_way

DervProf wrote: »

Lower interest rates will lead to an increase in disposable income for those who have debt. However, there are a few things to consider. If the banks don't pass on lower base rates (assuming you are talking about base rates), then it won't make much difference to disposable income. In fact, it's arguable that low interest rates can lead to an increase in inflation, pushing up costs other than that of paying off debt - so for those without debt, or those with small debts and savings, lower interest rates will almost certainly lead to lower disposable income.

We can assume that when the reverse occurs the opposite effects will be caused. Those with debt will have less disposable income and the small numbers of people with savings will be better off.

So when at some point in the future the rates move up it will have a generally negative effect on the majorities disposable income. To claim otherwise is denial is it not.

JonnyBravo

RenovationMan wrote: »

I'm not sure what your talking about, because salary multiples vs the cost of a property is irrelevent.

But that's what he's talking about as that is strictly what Hamish typed.
Clearly the Prof thinks every word written in English has only one interpretation and no nuances exist or inferences should ever be drawn.
Clearly we are unable to understand basic English.
He is capable of understanding basic English...
but perhaps only that, and if someone wanted to use any kind of subtlety in English, he would be as lost as his maths is.

RenovationMan wrote: »

Lets do the maths with my home:

My house was bought in May 2010 for £450k. I earn £60k. My 'House vs salary Muliple' is therefore x7.5. So what does this prove apart from the fact that if I had no deposit or equity from my last house, I would not be able to afford my current one. Really? I guess this is why FTBers don't buy 5 bed farm houses. What a revelation! :eek:

but, but, but..... you haven't read what Hamish actually wrote.
:rolls eyes:

chucky

Graham_Devon wrote: »

The average mortgage vs income statistics are what they are.

However, they either miss a large part of the market, or the figures are skewed.

Reason being, self certification.

Almost half of all mortgages approved between 2007 and 2010 were self certification mortgages. Easily enough to skew statistics.

jeeez, talk about people being really hard of reading.

half of the mortgages were not self certification. i repeat for your benefit Devon, they were not self certified.

a mortgage that is self-certified and a mortgage that income isn't checked because the person has a good/high credit score are two very different things.

now if you could do us all a favour and actually read posts and stop posting nonsense that doesn't make sense and isn't true.
thanks,
chucky