House Price (Non) Crash 1

sarah_elton

There is an assumption in a lot of the maths going on here that people's wages are static, or rising at the quoted wage inflation levels. In saying that, the assumption is being made that people stick in the same job, i.e. don't move to other firms or go for promotions.

I'm not putting that forward as a macro-level reason there won't be a dip in prices, but on the micro-level where people comment on others' choices of mortgage size, this should be taken into account. My mortgage was 4.2 times my salary when I took it out a year ago. Between what little capital I've repaid in that time, plus a job move, that multiple currently stands at 3.5 times.

Alan_M_2

4.2 or 3.5 times multiple of a single salary is a whole world away from a 100% mortgage on 5x joint salaries.

How about if one partner has to take redundancy, or the wife becomes pregnant etc.

roswell

albacore1854 wrote:

A number of sources suggest two rate rises in 2007, making base rate 5.5%. Doubt that will have a terrific impact.

But what about all the other rising costs, council taxes, energy, fuel, food etc. All increasing way above inflation.

Gotta pop hasn't it?

But that raise of 0.5 in real terms is a 10% increase if that were to happen and continue with out wages following there will be problems.

All other costs are rising as you point out and the effect of these would probably take a year or 2 before they started to impact the housing (mortgage) market as people will us other forms of borrowing to make up the shoft fall each month, it will only be at the point they cant borrow anymore that the mortgage will stop being paid.

roswell

sarah_elton wrote:

My mortgage was 4.2 times my salary when I took it out a year ago. Between what little capital I've repaid in that time, plus a job move, that multiple currently stands at 3.5 times.

Correct, but when your placed in a city environment leaving one job to get another isnt a hard task really, there are many rural places in the Uk where people will take a position with a company get promotion as and when the top level retire and wages are restricted by bracketing on the local average wage for the position, Eg in my locality i would put the average wage at £15 000, pre minimum wage this was around £9000

Pre minimum wage average housing as £20 000 - £35 000 (new 3 bed detached was £45 000)

Current "average" house price I would put as £90 000 - £120 000 then take deductions for council tax food water electric and there isnt very much in the affordability pot for "life" weekends out with kids / socialising etc.

sarah_elton

As I said, that was a micro level argument that applies to some people. Just a comment prompted by the tendency to jump on individual circumstances here.

roswell

Sorry no jumping intended just an example.

SusanCarter

Alan_M wrote:

I make that closer to £16K a year net for everything else, so that' somewhere between £1,300 and £1,600 a month for two people to cover the following bills:-

council tax
electricity
Gas
household insurances
Personal insurances
commuting into the city X2 (how much are season tickets now?)
Groceries

And all this is before you buy and run a vehicle. Have any social life, holidays, home improvements, home repairs, purchase of contents for the home.

I'd suggest at this level they'd be struggling to make all payments with zero social life, zero savings, zero improvements etc...so I disagree that this figure will be comfortable.

I'm not going to dispute your figures as I was only using rough figures in my calculations. I realise that the cost of living in London is relatively high but in the last year my husband and I spent about £7k excluding council tax and rent. This includes a lovely ten day holiday, a weekend away and the running costs of a car. I know it's not an extravagant lifestyle but I'd say we are fairly comfortable. Having said that, I guess in your example, the couple would be used to having a lot more money so therefore it would be difficult for them as it would involve a change in lifestyle.

lypsey

If wage rises start to increase to 4% then you can be very sure interest rates will rise a lot further than 1st thought. You will surely see the pain with mortgages the size we have now with "normal" interest rates. The housing market will be under massive massive presure

http://news.bbc.co.uk/1/hi/business/6240137.stm

mystic_trev

There's been so much in the media about peoples "personal" rate of inflation being higher than CPI or RPI (3.9%) and that their real salaries are falling behind ever rising prices. I can see major strikes from the Public sector this year,demanding higher wage rises. Further inflation beckons - what odds for 6% interest rates by next year?