Is inflation starting to hit the housing market?

Graham_Devon

CML seem to think so.

The amount of money being lent to UK homebuyers fell last month, according to figures from the Council of Mortgage Lenders (CML).

New mortgage lending amounted to £10.4bn in January, the lowest figure since April 2012.

It represents a fall of 9% compared with December, and a 3% fall compared with January 2012.

The CML said it was worried that rising inflation would make it harder for people to afford to take out a new mortgage.

"But we still expect the Funding for Lending scheme to lift activity over coming months," said Caroline Purdey of the CML.

We starting to see those in the industry now starting to nod towards the cost of living being a problem for "would be" housebuyers?

http://www.bbc.co.uk/news/business-21517934

wotsthat

If wages aren't keeping up with inflation then clearly mortgage payments are going to require a bigger proportion of income to service them.

To be honest if I was a would be buyer and worried about inflation I'd be trying to bring forward a purchase with a mortgage so that my deposit didn't get eroded and I could then see inflation working for me by eroding the monthly payments and total debt whilst inflation proofing my housing costs.

Rents tend to be inflationary so there's no hiding place in the rental market for would be buyers either.

Graham_Devon

wotsthat wrote: »

If wages aren't keeping up with inflation then clearly mortgage payments are going to require a bigger proportion of income to service them.

To be honest if I was a would be buyer and worried about inflation I'd be trying to bring forward a purchase with a mortgage so that my deposit didn't get eroded and I could then see inflation working for me by eroding the monthly payments and total debt whilst inflation proofing my housing costs.

Rents tend to be inflationary so there's no hiding place in the rental market for would be buyers either.

Inflation wouldn't erode your mortgage payments though.

Only wage inflation would do that, and the problem the CML describe is inflation and wage inflation not keeping up (hence it getting harder).

grizzly1911

Problems are only going to get worse for a growing proportion of the population. Living costs will continue to run ahead with energy/fuel /food eating into free income swathes of the public sector will become locked out as across the board wage freezes take hold. In the private sector there will be scope for some to lift themselves out of the trap.

Turnbull2000

I think we're a long way off inflation hitting house prices. The BoE must be aware that FfL, QE and low base rate will ensure ultra cheap mortgages for a good while yet, offsetting any rise in the cost of living. And if rumours are correct, we can soon expect major intervention to provide state-backed cheap mortgages for first-time buyers. This would be a massive shot in the arm.

The alternative is of course to raise rates, strengthen the pound and reduce inflation. But this would cause collateral damage to the housing market and banks. The BoE have taken what they consider the least worst option - protect house prices, the banks and allow some inflation.

wotsthat

Graham_Devon wrote: »

Inflation wouldn't erode your mortgage payments though.

Only wage inflation would do that, and the problem the CML describe is inflation and wage inflation not keeping up (hence it getting harder).

Inflation reduces the real value of fixed monthly payments and you don't need wage inflation to keep up with inflation for monthly payments to reduce in value unless 100% of earnings are spent.

Say I earn £10k with a mortgage payment of £1000 year. I get a 1% pay rise (less than inflation) - the proportion of wages needed to service the debt goes from 10% to 9.9%.

grizzly1911

wotsthat wrote: »

Inflation reduces the real value of fixed monthly payments and you don't need wage inflation to keep up with inflation for monthly payments to reduce in value unless 100% of earnings are spent.

Say I earn £10k with a mortgage payment of £1000 year. I get a 1% pay rise (less than inflation) - the proportion of wages needed to service the debt goes from 10% to 9.9%.

If your necessary bills are £1000 too an dthey are increasing by 10% a year e.g. energy then at the end of year on instead of spending 20% of income you are now at 20.7% year 1, year 2, 21.7%.

I accept that inflation is eroding the real cost but if you can't afford the outgoings because other items are outstripping wage growth then it can cause problems not to mention future interest rate rises or the fact that a car replacement, for example, will potentially have jumped in cost.

Graham_Devon

wotsthat wrote: »

Inflation reduces the real value of fixed monthly payments and you don't need wage inflation to keep up with inflation for monthly payments to reduce in value unless 100% of earnings are spent.

Say I earn £10k with a mortgage payment of £1000 year. I get a 1% pay rise (less than inflation) - the proportion of wages needed to service the debt goes from 10% to 9.9%.

If you isolate the mortgage from all other cost increase, then sure, your argument is valid.

Assuming people have other bills to pay (which i's fair to say most do) which are increasing, it's less so. Infact it's hardly valid at all, for the reason (amongst others) grizzly has pointed out.

It's a bit like saying I've saved £5 on my electricity bill this month and ignoring that to do so I've had to spend £600 on new energy efficient goods.

armour

As long as money is cheap, and it's expected to be so for a good time yet, house prices won't be dropping much. Both residential & BTL rates and fees have dropped considerably recently. I expect this trend to continue.

moneyinmypocket

I am all for a good dose of HPI let those prices roar upwards.

Thrugelmir

grizzly1911 wrote: »

Living costs will continue to run ahead with energy/fuel /food eating into free income swathes of the public sector will become locked out as across the board wage freezes take hold.

Not helped by the increase in employee public sector pension contributions. Which are rising both this April and next.

So those at the top of their pay grade bands. Are seeing pay decreases.

My partners is going to lose several hundred pounds this coming year alone.