The correction has been, gone, and is over

mwpt

ukcarper wrote: »

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

Well maybe you need to re-examine your "mortgages are being rationed" theory then. The stats for FTB borrowing figures in London are there for you to see. Do the math at higher rates and see if people could afford the same mortgages.

ukcarper

mwpt wrote: »

Well maybe you need to re-examine your "mortgages are being rationed" theory then. The stats for FTB borrowing figures in London are there for you to see. Do the math at higher rates and see if people could afford the same mortgages.

I not arguing about mortgage rationing,what I am saying the average person can not borrow anymore in relation to their earnings than they can before crash there how can they pay more for a house than they could then. The mortgage might well be more affordable with lower interest rates but if they can't borrow more that won't impact on the price they can pay for a property.

wotsthat

mwpt wrote: »

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

Your formula shows debt (your proxy for price) is determined by...

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

I don't agree with it because it assumes prices are a function of the most that can be borrowed - I've never paid the most I could for a house.

That's by the by. It doesn't matter what comes after the equals sign because if it exceeds c4.5 earnings you won't get the loan.

A simpler version would be

max debt = 4.5 earnings and ...

if the monthly payment at an assumed 7% meets lender affordability criteria and the max debt meets LTV criteria.

If I can borrow at 4% and that falls to 2% I can't suddenly borrow 9x earnings instead of 4.5x

dktreesea

Thrugelmir wrote: »

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.

If interest rates return to normal, the first ones to suffer would probably be those on lower incomes because they don't have the wriggle room that someone on a higher income could have.


They do seem to be creeping up though. Our bank's tracker rate is now 3.94%.

dktreesea

ukcarper wrote: »

I not arguing about mortgage rationing,what I am saying the average person can not borrow anymore in relation to their earnings than they can before crash there how can they pay more for a house than they could then. The mortgage might well be more affordable with lower interest rates but if they can't borrow more that won't impact on the price they can pay for a property.

True, but in the intervening years they may have saved up a larger deposit, and beaten the rate that houses were increasing (if at all) in their target area to buy over the same time. Their income could have gone up. Their other borrowings could have gone down, leaving more room for their potential mortgage borrowings.


People up here who might have, in times gone by, been able to afford a freehold house are buying 25% shares in housing association properties, just to get on the housing ladder. I've never thought these were a particularly good buy, but compared to rents going up and up maybe they are becoming so.

ukcarper

dktreesea wrote: »

True, but in the intervening years they may have saved up a larger deposit, and beaten the rate that houses were increasing (if at all) in their target area to buy over the same time. Their income could have gone up. Their other borrowings could have gone down, leaving more room for their potential mortgage borrowings.


People up here who might have, in times gone by, been able to afford a freehold house are buying 25% shares in housing association properties, just to get on the housing ladder. I've never thought these were a particularly good buy, but compared to rents going up and up maybe they are becoming so.

Not sure what point you are trying to make.

mwpt

wotsthat wrote: »

Your formula shows debt (your proxy for price) is determined by...

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

I don't agree with it because it assumes prices are a function of the most that can be borrowed - I've never paid the most I could for a house.

Of course you don't agree with it. Why would you agree with anything a "crash wisher" says. I've leave it to you to work out why "the most that can be borrowed" is an irrelevant and stupid argument.

cells

ukcarper wrote: »

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

even that is a stretch,

in about half the country house prices are about half (or less) than the max a median full time working couple can borrow

In stoke the average terrace costs 1 x joint full time income, which is well below the 4-4.5 x max a bank will lend. So prices in stoke are about 1/4th of what the banks will lend. The reason is easy and clear there is a surplus of homes in stoke so prices are very affordable.


the availability and price of credit mostly determines who buys rather than anything else. ration credit and buyers will be those who dont need credit. The idea that if you ration credit house prices will fall to a level were exactly the same people buy exactly the same homes but at a lower more affordable price has been disproved over the last 8 years. ration credit and those who dont need credit step in as by the evidence of more mortgage free rentals now than any time this centuary

mwpt

cells wrote: »

even that is a stretch,

in about half the country house prices are about half (or less) than the max a median full time working couple can borrow

And yet somehow this proves we're rationing credit. The fact that people aren't buying houses priced at far less than what a bank will lend them?

cells wrote: »

The idea that if you ration credit house prices will fall to a level were exactly the same people buy exactly the same homes but at a lower more affordable price has been disproved over the last 8 years. ration credit and those who dont need credit step in as by the evidence of more mortgage free rentals now than any time this centuary

Maybe that's because your credit rationing theory is not true. As I've pointed out many times we have plenty of mortgage products available, at ultra low rates. The only time that may have been looser credit was 2000-2007.

If mortgage rates were 7% house prices would be a lot lower and the people that you are so valiantly trying to save would have been eligible for the mortgage to buy them.

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.

Irrelevant really if people weren't borrowing at max affordability. Ask yourself, if people were borrowing the max they could previously, why are house prices multiples of income continuing to rise?

Why are prices rising at exponential rates while mortgage monthly payments rise linearly (roughly in line with rents)?

The only thing that makes this possible is lower rates and longer terms. It's not controversial or magic.