How interest rates affect property values

mwpt

HAMISH_MCTAVISH wrote: »

Wouldn't it be simpler to just acknowledge that prices are always set by supply and demand?

And that factors such as the cost and availability of credit are merely one of many components of effective demand?

It might be simpler but it wouldn't be accurate or desirable (imo). Your desire is to see a boom in lending again which you believe would lead to increased supply (which I agree with to an extent btw) but you are prepared, or rather positively willing, to ignore the down sides of this strategy.

The down sides are that it increases house prices even further meaning you have to continually chase the prices with cheaper and easier credit and results in a system massively prone to boom and bust. Why can't we find middle common ground?

mwpt

wotsthat wrote: »

Yes, the maths stacks up but that's about all.

Decreasing rates means people can borrow more for the same repayment but it's a stretch to assume they will or be allowed to borrow more when it comes to houses.

You can very very easily disprove my maths by showing your own. Show me the stats about lending multiples so we can test it.

ukcarper

As I said on other thread average FTB house price to full time median earnings has increased from 6x to 10x in London over the last 5 years, can someone in London now borrow almost twice as much as they could 5 years ago.

mwpt

ukcarper wrote: »

As I said on other thread average FTB house price to full time median earnings has increased from 6x to 10x in London over the last 5 years, can someone in London now borrow almost twice as much as they could 5 years ago.

What are you trying to say? Draw up some calculations with correlations and show me your point.

HAMISH_MCTAVISH

mwpt wrote: »

It might be simpler but it wouldn't be accurate

Hang on.

1) You have stated in this thread that "Houses can increase or decrease during rate movement periods based on wider economic conditions."

2) You have also stated in this thread that "House prices are a function of many many variables. So there is no definite rule that says if interest rates rise, house prices must fall. Or vice versa."


Based on those two statements, and your acknowledgement in this thread that credit prices do not move goods prices where demand is less than supply, how can you possibly dispute that prices are always set by supply and demand?

And that factors such as the cost and availability of credit are merely one of many components of effective demand?

wotsthat

mwpt wrote: »

You'll have to ask the people of Stoke why they don't want to buy houses. According to your own stats the prices are well within lending multiples vs average salaries and mortgage costs are less than rent. Why do you make the assumption that the people in Stoke are special cases that the banks don't want to lend to at much safer levels but in neighbouring booming towns with higher prices, banks are fine with those people. How does that argument make sense? Maybe people just don't want to pay higher prices in Stoke and so credit costs are irrelevant.

It's London that's the special case and, as you live in a London bubble, you can't see it.

mwpt

HAMISH_MCTAVISH wrote: »

Hang on.

1) You have stated in this thread that "Houses can increase or decrease during rate movement periods based on wider economic conditions."

2) You have also stated in this thread that "House prices are a function of many many variables. So there is no definite rule that says if interest rates rise, house prices must fall. Or vice versa."


Based on those two statements, and your acknowledgement in this thread that credit prices do not move goods prices where demand is less than supply, how can you possibly dispute that prices are always set by supply and demand?

And that factors such as the cost and availability of credit are merely one of many components of effective demand?

I'm not disputing it, I'm saying it's not the whole picture. Credit plays a huge part and I'm interested in all the implications of that, not the narrow view.

mwpt

wotsthat wrote: »

It's London that's the special case and, as you live in a London bubble, you can't see it.

Can you explain to me why we can't examine London as a case?

Can you please explain to me why people in Stoke aren't borrowing when prices are well within acceptable bank lending restrictions?

ukcarper

mwpt wrote: »

What are you trying to say? Draw up some calculations with correlations and show me your point.

What I'm saying is obvious the amount you can borrow which has remained broadly the same has not slowed house prices.

The average FTB mortgage multiple for last quarter of 2013 in London was 3.79 which was Slightly higher than preceding quarter.

https://www.cml.org.uk/news/press-releases/3833/

wotsthat

mwpt wrote: »

You can very very easily disprove my maths by showing your own. Show me the stats about lending multiples so we can test it.

No, I agree with the maths but I don't agree people can or will borrow more to buy a house because interest rates fall.

You don't need stats - just a mortgage calculator and logic. I can help with the mortgage calculator...

http://www.nationwide.co.uk/products/mortgages/our-mortgages/mortgage-calculators/mortgage-affordability-calculator

I can't borrow more by choosing a cheaper mortgage if that takes me beyond the earnings multiple collar.