The correction has been, gone, and is over

cells

mwpt wrote: »

Firstly, please don't make up stuff about my theories and present it as fact. This is a strawman type argument.

Your entire theory rests on a claim that mortgages are being unduly rationed more so than in the past (not 2000-2007) but you have no ability to prove this claim.

In order to support it you point out to house prices being "cheap in over half the country". On the thread where you started this claim, people pointed out that prices were not cheap in many areas in the north. Unsurprisingly, in desirable areas in the north, prices are not that cheap and multiples of income are quite high. In areas near this that are less desirable, prices are lower and may be considered cheap. But why is mortgage rationing impacting one area but not another nearby area?

mortgage rationing is impacting everywhere its why renting in the north and Midlands where prices are cheap is also on the increase

A terrace house in Birmingham is £101k (and has been below that for the last 7 years) which is cheap so why has ownership declined and renting increased in Birmingham if its all to do with price a la your theory?


Also I make no claim on to irrelevant historic mortgage rationing. What has mortgages in the 50s 60s 70s got to do with today the world is a totally different place. I am pointing out to you that the 7 years before the crash and now 8 years after were clearly two different regulatory regimes and the pre crash regulations were much higher owners and the post crash over reaction is leading us rapidly to much fewer owners even in the places where prices are lower or the same as 10 years ago which clearly suggests its not price its something else. If the price was £100k now and £100k ten years ago and the owner pool reduced then something other than price did that surely thats easy and clear

In desirable areas, where demand exceeds supply, we see upward movement of prices and at this point the cost of credit is the enabler. The price of the asset is roughly proportional to the amount you can borrow which is roughly:

P = (mp / mi) * (1 - (1 + mi)^nm)

P = price of asset
mp = amount you can afford to pay monthly
mi = monthly interest rate
nm = number of months of entire term of mortgage

We know that monthly mortgage payments track monthly rents pretty closely. So the asset moves up in price as the amount you can pay each month moves up, but more importantly, as the cost of credit comes down, or the length of the mortgage extends.

Now, lending restrictions apply based on the cost of the asset. My proposal is that lending multiples are no stricter than historical norms (maybe looser) but the problem is the low interest rates and high asset prices. If rates were higher, asset prices would be lower and we would not have a problem with lending multiples restricting loans.

In order for your proposal to work, as the cost of credit comes down and the asset price increases, you need to loosen the mortgage restrictions even further for people to obtain the loans. This then of course adds upward pressure to prices and we need to either lower cost of credit and further ease lending restrictions. It's a circular argument and leads to ever higher prices.

But this then limits the ability to ever increase mortgage rates because people who have been allowed to borrow at low rates, rather than constrained against theoretical higher rates, will be in trouble should rates rise. That is the point of MMR, to protect people from themselves.

Unfortunately, we're in a situation where mortgage rates were allowed to fall too low in my opinion. If they had not fallen this low, we would not be having this debate because asset prices would be lower and lending could occur.

I don't know what the solution is right now, we're not going to raise rates soon, but lending as if rates will never rise isn't the answer. It'll cause more problems than it solves.

Now read this post thrice.

lots of noise to try and save your credit theory.

its gone from cheap credit blowing bubbles to cheap credit blowing bubbles (but only in the desirable areas) ... seriously!



you going to need to tweak your pet theory again to try and explain in towns and cities where the price is the same as 10 years ago what has caused the local population to shun buying?

mwpt

cells wrote: »

mortgage rationing is impacting everywhere its why renting in the north and Midlands where prices are cheap is also on the increase

A terrace house in Birmingham is £101k (and has been below that for the last 7 years) which is cheap so why has ownership declined and renting increased in Birmingham if its all to do with price a la your theory?

Also I make no claim on to irrelevant historic mortgage rationing. What has mortgages in the 50s 60s 70s got to do with today the world is a totally different place. I am pointing out to you that the 7 years before the crash and now 8 years after were clearly two different regulatory regimes and the pre crash regulations were much higher owners and the post crash over reaction is leading us rapidly to much fewer owners even in the places where prices are lower or the same as 10 years ago which clearly suggests its not price its something else. If the price was £100k now and £100k ten years ago and the owner pool reduced then something other than price did that surely thats easy and clear

lots of noise to try and save your credit theory.

its gone from cheap credit blowing bubbles to cheap credit blowing bubbles (but only in the desirable areas) ... seriously!

you going to need to tweak your pet theory again to try and explain in towns and cities where the price is the same as 10 years ago what has caused the local population to shun buying?

I don't need to tweak my theory to explain anything. Desirable areas increase in prices because people want to buy there, and cheap credit allows the price to inflate. Why would I need to explain why people don't want to buy in undesirable areas?

If you think this is because of mortgage rationing, the onus is on you to prove it, or go up there and ask someone why people in nearby desirable areas are not being "mortgage restricted" but they are.

Nothing in my theory is controversial and I don't need to rely on unsubstantiated statements of "mortgage rationing".

dktreesea

mwpt wrote: »

I don't need to tweak my theory to explain anything. Desirable areas increase in prices because people want to buy there, and cheap credit allows the price to inflate. Why would I need to explain why people don't want to buy in undesirable areas?

If you think this is because of mortgage rationing, the onus is on you to prove it, or go up there and ask someone why people in nearby desirable areas are not being "mortgage restricted" but they are.

Nothing in my theory is controversial and I don't need to rely on unsubstantiated statements of "mortgage rationing".

Desirable areas would likely increase in price even if mortgages were harder to come by. That's just a supply and demand issue.


With mortgage rationing, I did see something reported recently (http://www.theguardian.com/money/2016/feb/22/warning-homebuyers-stretch-housing-ladder-council-mortgage-lenders-mortgages-25-years-rising-house-prices) saying banks, after the recession, were restricted to lending only 15% of their capital for mortgages at multiples of more than 4.5 times income.


This is the original report. http://www.theguardian.com/business/2014/sep/28/mortgage-lending-limits-home-loans-market


Limiting people to 4.5 times their salary for a mortgage is too simplistic imho. Sure, if someone is earning only £10k a year, a £45k mortgage is going to take a huge chunk out of that percentage wise. I don't think someone on, £70k a year, wanting a £450k mortgage, is going to have quite the same difficulty to cover the rest of their expenses.


Yet, if they go to the bank, with their £47,900 after tax, wanting a mortgage that costs £1800 a month, (so still leaving them with £500 a week to live on) they get told the most the bank will lend them is £315k. The seller has his £100k deposit from the property he is selling, i.e. what's left after paying his current mortgage off, but his situation is ludicrous. He can easily afford a £450k mortgage but has to settle for a much lower value house or wait another couple of years to save an extra £85k by which time the properties in his chosen desirable area will have jumped some more.


He's been to other banks. The best he could do is 5 * his salary. One of the banks said to him "oh yes, but what happens if you lose your job?" Surely he would then have to sell up if he couldn't get another job. But that risk exists whoever the bank lends to.


Mortgage restrictions or mortgage rationing, I am not sure which. But banks risk shooting themselves in the foot if they are not prepared to allow their existing mortgage customers to upgrade to a home they can afford when the person's circumstances permit them to do so.

Thrugelmir

dktreesea wrote: »

Desirable areas would likely increase in price even if mortgages were harder to come by. That's just a supply and demand issue.


With mortgage rationing, I did see something reported recently (http://www.theguardian.com/money/2016/feb/22/warning-homebuyers-stretch-housing-ladder-council-mortgage-lenders-mortgages-25-years-rising-house-prices) saying banks, after the recession, were restricted to lending only 15% of their capital for mortgages at multiples of more than 4.5 times income.


This is the original report. http://www.theguardian.com/business/2014/sep/28/mortgage-lending-limits-home-loans-market


Limiting people to 4.5 times their salary for a mortgage is too simplistic imho. Sure, if someone is earning only £10k a year, a £45k mortgage is going to take a huge chunk out of that percentage wise. I don't think someone on, £70k a year, wanting a £450k mortgage, is going to have quite the same difficulty to cover the rest of their expenses.


Yet, if they go to the bank, with their £47,900 after tax, wanting a mortgage that costs £1800 a month, (so still leaving them with £500 a week to live on) they get told the most the bank will lend them is £315k. The seller has his £100k deposit from the property he is selling, i.e. what's left after paying his current mortgage off, but his situation is ludicrous. He can easily afford a £450k mortgage but has to settle for a much lower value house or wait another couple of years to save an extra £85k by which time the properties in his chosen desirable area will have jumped some more.


He's been to other banks. The best he could do is 5 * his salary. One of the banks said to him "oh yes, but what happens if you lose your job?" Surely he would then have to sell up if he couldn't get another job. But that risk exists whoever the bank lends to.


Mortgage restrictions or mortgage rationing, I am not sure which. But banks risk shooting themselves in the foot if they are not prepared to allow their existing mortgage customers to upgrade to a home they can afford when the person's circumstances permit them to do so.

If interest rates were to return to normal the mortgage cost rises to over £3k a month. That's why lending is now so tightly regulated. regulated. For a decade too many cowboys in the industry.

cells

People only really have three choices. To rent or to buy or to be homeless. Buying is cheaper as there is no middleman who needs paying.

Currently a tenant needs to have a landlord bid on their behalf a figure of Y which is higher than the figure X that the mortgage regulations allow them to bud diretly.

My argument is that tenants should be free to bid Y directly (self cert interest only). Some others argue that borrow to buy landlords should be forbidden from bidding Y so that the renters bids of X a much lower figure will be the clearing price. My counter argument is that borrow to buy landlords are the minority the majority is equity landlords so if borrow to buy goes away the clearing price does not fall to x but stays at or close to y

ukcarper

mwpt wrote: »

I don't need to tweak my theory to explain anything. Desirable areas increase in prices because people want to buy there, and cheap credit allows the price to inflate. Why would I need to explain why people don't want to buy in undesirable areas?

If you think this is because of mortgage rationing, the onus is on you to prove it, or go up there and ask someone why people in nearby desirable areas are not being "mortgage restricted" but they are.

Nothing in my theory is controversial and I don't need to rely on unsubstantiated statements of "mortgage rationing".

That would be true if the amount you could borrow was more closely linked to interest rates I don't believe the amount you can borrow in relation to your earnings is significantly higher now than it was when rates were higher.

mwpt

ukcarper wrote: »

That would be true if the amount you could borrow was more closely linked to interest rates I don't believe the amount you can borrow in relation to your earnings is significantly higher now than it was when rates were higher.

Exactly my point. Low interest rates have pushed prices higher, which has a disabling effect on people's ability to borrow unless you also adjust lending multiple restrictions. But if we do that, prices will rise further and interest rates can never rise from the current emergency low levels.

ukcarper

mwpt wrote: »

Exactly my point. Low interest rates have pushed prices higher, which has a disabling effect on people's ability to borrow unless you also adjust lending multiple restrictions. But if we do that, prices will rise further and interest rates can never rise from the current emergency low levels.

I don't follow that the thing that determines what most people can buy is how much they can borrow and if that has not changed significantly with lower rates how can low rates cause prices to increase.

mwpt

ukcarper wrote: »

I don't follow that the thing that determines what most people can buy is how much they can borrow and if that has not changed significantly with lower rates how can low rates cause prices to increase.

Read up. If you don't understand my post with the equation then I'm not going to bother trying again.

ukcarper

mwpt wrote: »

Read up. If you don't understand my post with the equation then I'm not going to bother trying again.

Your equation does not take into account the amount you can borrow which is the main factor in house prices.

Lets takes the old 4X income borrowing criteria, someone earning £25k could borrow £100k giving a mortgage repayment over 25 years of £650 a month or about 30% of gross earnings, at 2% that 30% of gross earnings would pay for a £150k mortgage, can that same person now borrow 6x earnings?