Bank of England may put limit on mortgage ratios

wotsthat

Graham_Devon wrote: »

It's pure common sense. Cheaper houses are easier for everyone to buy. Renters or not. It's as simple as that.

We've only ended up here in this discussion as you are trying to suggest common sense basically doesn't apply in this situation. Which is nonsense.

You can go on and on about how much it costs to rent a property. But if you won't look at the savings over the lifetime of the mortgage for a lower cost house, then I'm afraid youare looking at it from purely one side and coming up with a debt junkie conclusion.

Theres really no point discussing this much further. A lower value house is easier for everyone to buy, regardless of circumstances.

It's not 'common sense' that something with a lower price is cheaper to buy. That's an incorrect assumption. If we're talking about pints of milk then generally you'd be correct.

As soon as the item in question has a cost of ownership or requires finance to buy this 'common sense' goes out of the window.

Realistically, if houses fell to £100,000 but deposit requirements stayed the same (or likely get worse in this circumstance) then it makes no difference to a potential owner occupier trying to get into the market. They still have a huge barrier of the deposit £25k or £35k - they are both a barrier to entry.

What would happen if prices fell this far would be that these (non) potential buyers would have to rent from BTL who would be snapping up cheap properties. Our intrepid non-buyers would end up paying more for accomodation even though the banks (and many here) think they are a poor risk.

Lower prices should lead to lower housing costs - no-one's saying anything different. However, everyone needs to operate within the constraints of the reality of what they face rather than the fantasy of what they want.

Graham_Devon

wotsthat wrote: »

It's not 'common sense' that something with a lower price is cheaper to buy. That's an incorrect assumption. If we're talking about pints of milk then generally you'd be correct.

Afraid it is common sense.

There is no real way that you can argue that it's easier to buy a house when the house price is higher, than it is to buy the house when the house price is lower.

The argument that it's easier to buy a house when its more expensive due to the availabillity of mortgages isn't actually an argument over how affordable a house may be.

It's an argument over how easy it is to get hold of the debt, regardless of the amount.

Easier debt pushes the asset price up, meaning you may get the house quicker, but it won't be as easy to buy, as every single cost (initial and ongoing) is higher. Ultimately, it costs more to buy the house. It's just easier to get it initially.

And that's all based on hyperthetical situations anyway, as at the moment we don't have that easy debt.

What you are arguing is merely how easy it is to get hold of the credit. The costs of the house and credit appear to pass you by.

System

CLAPTON wrote: »

basically the same as now except you see a mortgage advisor (well with building societies you always did.)

It's not the same because I carefully avoided any reference to an income multiple. That's the point - someone's ability to service a loan has got very little to do with the relationship between size of loan and income. It's net income available to service the loan that counts.

grizzly1911

Clifford_Pope wrote: »

It's not the same because I carefully avoided any reference to an income multiple. That's the point - someone's ability to service a loan has got very little to do with the relationship between size of loan and income. It's net income available to service the loan that counts.

Very true but across a basket of borrowers, averaging out income expenditure trends an upper loan/Income limit can be applied (using long term interest rate averages), for any given mortgage term, above which it would be prudent not to lend. Inventing MIGs just masks an an otherwise unsatisfactory proposal, squeezing out a few extra shekels from desperate punters.

Peoples propensity to spend beyond their means has always been the case. Peoples views on what is necessary and reasonable expenditure also differ, some people are provident and some aren't.

Much as there are people who pass a "test" and drive who shouldn't there are those that get into home ownership who shouldn't.

wotsthat

Graham_Devon wrote: »

Afraid it is common sense.

There is no real way that you can argue that it's easier to buy a house when the house price is higher, than it is to buy the house when the house price is lower.

The argument that it's easier to buy a house when its more expensive due to the availabillity of mortgages isn't actually an argument over how affordable a house may be.

It's an argument over how easy it is to get hold of the debt, regardless of the amount.

Easier debt pushes the asset price up, meaning you may get the house quicker, but it won't be as easy to buy, as every single cost (initial and ongoing) is higher. Ultimately, it costs more to buy the house. It's just easier to get it initially.

And that's all based on hyperthetical situations anyway, as at the moment we don't have that easy debt.

What you are arguing is merely how easy it is to get hold of the credit. The costs of the house and credit appear to pass you by.

The price tag is a small part of the overall cost of housing and nothing has passed me by either.

If I was a FTB I'd be saving like mad to take advantage of the lower housing costs associated with buying. I'd (obviously) be hoping that prices fall as well and be trying to get a decent deal on the purchase but as soon as I had the deposit I'd be in.

The longer the time period the less significant the initial purchase price becomes.

Thrugelmir

grizzly1911 wrote: »

Very true but across a basket of borrowers, averaging out income expenditure trends an upper loan/Income limit can be applied

There's also a lower income level. As a certain % of disposable income has to be put aside for basic living expenses.