Indy - BoE pump priming of mortgage market brings house price cheer

HAMISH_MCTAVISH

grizzly1911 wrote: »

NS Sherlock.

Yous state the obvious.

So then as you seem to agree that with rates at 5% rather than 15%, it is entirely possible that a buyer can both afford a bigger multiple and have more disposable income, what makes you think a 3.5 times income house price is remotely appropriate, likely, or even possible today?

Especially given the rise of 2 income households and the monumental housing shortage in this country?

grizzly1911

HAMISH_MCTAVISH wrote: »

So then as you seem to agree that with rates at 5% rather than 15%, it is entirely possible that a buyer can both afford a bigger multiple and have more disposable income, what makes you think a 3.5 times income house price is remotely appropriate, likely, or even possible today?

Especially given the rise of 2 income households and the monumental housing shortage in this country?

I agree that repayments at 5% interest are less than those at 15%.


Whether you can afford to LIVE in properties where you take bigger and bigger multipliers is another issue.

Of course the figures look wholly doable on paper but stuff happens in life.

You seem to have this mindset that you simply live for property and should purchase at any cost.

To be fully reliant on two incomes and high multipliers is unrealistic for most people.

HAMISH_MCTAVISH

grizzly1911 wrote: »

I agree that repayments at 5% interest are less than those at 15%.

A good start.

Whether you can afford to LIVE in properties where you take bigger and bigger multipliers is another issue.

No, it's the same issue.

The multiplier does not measure affordability.

The fact is that people borrowing 5 times single salary at 5% are paying less of their income on mortgage payments than people borrowing 3.5 times single salary at 15%.

What was right then, is not right now.

It really is that simple.

the_flying_pig

HAMISH_MCTAVISH wrote: »

A good start.




No, it's the same issue.

The multiplier does not measure affordability.

The fact is that people borrowing 5 times single salary at 5% are paying less of their income on mortgage payments than people borrowing 3.5 times single salary at 15%.

What was right then, is not right now.

It really is that simple.

really, the truth lies somewhere in the middle, innit.

focusing on mortgage payments only is really a very myopic approach - it could lead to very odd conclusions, like someone buying an 'affordable' house that then, a couple of years after he's bought it, stops being affordable due to interest rates having gone up loads. mortgage repayments only tell you a part of the story.

equally it seems a bit daft not to take interest rates into account at all given that even on a repayment mortgage perhaps around half of what you're paying is interest.

really something like an average of mortgage repayments at current rates and mortgage repayments at a typical interest rate [if such a thing existed] would be best.

shortchanged_2

HAMISH_MCTAVISH wrote: »

Because 3.5 times income was the average when base rates had a realistic prospect of reaching 15% and most families did not have two full time workers.

Times change.....

Expecting 3.5 times income to be normal "just in case" rates shoot up to 15%, is like expecting every house to have a bomb shelter in the back garden "just in case" the Germans attack London again.

It made sense once upon a time, but not any more.

But what has got the housing market into the cack now Hamish. Was it anything to do with the fact that banks lent higher and higher income multiple mortgages? Opened the flood gates if you like.

There is one thing that I can guarantee you and that is house prices would be nowhere near where they are today if the banks had been stricter on income multiples and also hadn't been so reckless with IO lending.

HAMISH_MCTAVISH

shortchanged wrote: »

But what has got the housing market into the cack now Hamish. Was it anything to do with the fact that banks lent higher and higher income multiple mortgages? Opened the flood gates if you like..

Nope.

Nothing at all to do with that....

The debt that's caused the problems hasn't been the debt of households. It really has been down to silly bets by Britain's banks (and other parts of the financial system), which were NOT bets on UK residential property. Most of them weren't even in the UK.
http://www.bbc.co.uk/news/business-17398014

And....

the median loan-to-value ratio on a new mortgage didn't go up during the "boom" years - in fact, for most of the 1990s and noughties it was falling.

That's consistent with the idea that rising house prices caused bigger mortgages - not the other way around
http://www.bbc.co.uk/news/business-17398014

shortchanged_2

HAMISH_MCTAVISH wrote: »

That's consistent with the idea that rising house prices caused bigger mortgages - not the other way around
http://www.bbc.co.uk/news/business-17398014

This doesn't really make any sense though Hamish.

Because if the banks just turned around and said no we will not lend you 5 times your income mortgages to people then they simply wouldn't have been able to afford them.

Think of it in terms of the current market Hamish.Why is it so dysfunctional. It's because the banks are not now willing to lend the amounts that people are asking for their properties. Hence why we grumble along with very low transaction levels.

HAMISH_MCTAVISH

shortchanged wrote: »

if the banks just turned around and said no we will not lend you 5 times your income mortgages to people then they simply wouldn't have been able to afford them.

Yes they would.

They would have deferred purchase until they had saved the difference, because when prices are rising due to a shortage of housing, as happened here, then people must outbid each other or not get a house at all.

House prices in Hong Kong, Singapore, etc have risen to new highs despite strict mortgage market tightening by the government.

Mortgage rationing/restricting can never prevent HPI, it can only delay it for a while until people save the difference.

Think of it in terms of the current market Hamish.Why is it so dysfunctional. It's because the banks are not now willing to lend the amounts that people are asking for their properties. Hence why we grumble along with very low transaction levels.

No, it's because the banks are not lending anything at all to most people.

The few that are being lent to are still borrowing at almost the same multiples as they were in 2007.

grizzly1911

HAMISH_MCTAVISH wrote: »

A good start.




No, it's the same issue.

The multiplier does not measure affordability.

The fact is that people borrowing 5 times single salary at 5% are paying less of their income on mortgage payments than people borrowing 3.5 times single salary at 15%.

What was right then, is not right now.

It really is that simple.

I never said it did measure affordability.

I said

"I accept that salry multipliers are crude but not far off as a rule of thumb IME."

All that has happened is that multipliers have been used to fit the equation with ever increasing prices. It hasn't made the houses more affordable.

How long were interest rates at15%? What was the average BOE interest rate over the last 60 years? What is the average long term rate?

The average rate by my fag packet reckoning was around 7% plus a SV MR margin.

Was the 3.5 multiplier only formulated with 15% in mind?

Turnbull2000

HAMISH_MCTAVISH wrote: »

The few that are being lent to are still borrowing at almost the same multiples as they were in 2007.

Yup. 4.5x duel income is usually on offer from our lenders. Plenty enough to support current house prices - plus quite a bit more in the years ahead as persistent low base rates, Funding for Lending and numerous other measures and state props are eventually factored in.