House prices are still pretty low

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Soldato
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Well, they are when you take interest rates into account as well.

I decided to try and get some data on house prices, average earnings as well as interest rates to see what the result would be.
I then created a graph in Excel with the start of my data (Jan 1983) set to be an index of 100.

I actually used data for first time buyers from Nationwide here
And interest rate data from the Bank of England here

Here are the results:

houseprices2.jpg


Basically what I did was to work out how much the mortgage payment would be on a hypothetical mortgage given the base rate at the time. I then used this data and the average earnings ratio to provide a comparison between earnings and mortgage payments for the last 23 years.

We can see that at present we're still a long way off the peak value in around 1989. This is because, even though the ratio of house prices to earnings is higher now interest rates are just over a third of what they were back then, meaning that mortgage payments are little more than half what they were in mid 1989 for an equivalent mortgage.

From the data interest rates would need to double to 10% to take us back to the situation we faced in 1989.

Hope you find this informative :)
 
I remember we used to get tax relief on mortgage payments at one time though ,cant remember what year that stoped











.
 
You have to much spare time dude!! :p

But seriously I know house prices in this country are getting crazy but when you speak to an old boyu these days house prices are not to bad!!
Ok 50yrs ago house prices were peanuts - but people earned less than that!
No one had 2 cars, all the flashy gear and also a nice apartment somewhere -
They really did save hard cash back then (even as much as ham for dinner was a real treat!)
These days everyone wants everything -

But I agree with the low interest rate (although its slowly creeping up) houses are affordable - (maybe not on your own) but still
 
Ooh excellent this is great news. I'll go and borrow £230,000 to buy that 2 bedroom flat in the rough area around the corner. I know it's madness on my £25,000 average salary but it doesn't matter because this time next year it will be worth about £350,000. I have to get on the ladder now by any means possible because house prices only ever go up.
 
Von Smallhausen said:
Its a fair bet that it was after Labour came to power.
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Actually MIRAS was on its way out long before Labour came to power. INtroduced in the mid-80's, it contributed to the massive boom in house prices, as canny investors sunk their income into huge mortgages to gain tax releif. Then when the rates went up we had a whole load of people unable to cope with the now huge repayments.

Through the early 90's, succesive Tory governments reduce the tax ceiling year on year (the original 'stealth tax', in fact), until by the time Labour came to power there was hardly anything left - and having commited themselves to Tory fiscal plns for the firts term of office, Labour duly held true to this and scrapped MIRAS, in line with the identical Tory policy.

But of course its a lot easier to scream OMG LABOUR TAX!!!!!.....

I though you were more perceptive than that, Von.
 
DB_SamX said:
So, does anyone know what happenned in 89 to make the prices soar?
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MIRAS.....as I mentioned above.

http://www.theglobeandmail.com/series/election2k3/news/analysis11.html

From a US perspective, but describes the UK situation

In 1988, the government announced it would abolish multiple tax relief, where unmarried couples could each claim deductions on home loan interest. But it gave new borrowers a few months to beat the deadline. Panic buying was the result and house prices went crazy just as interest and unemployment rates began to climb. The market duly collapsed, leaving many homeowners with negative equity -- their homes were worth less than the mortgages on them. But that was just one side of the story. The other side was the damage to the government purse. MIRAS was costing the Treasury billions of pounds a year. In 1990-91, just as the British economy was going into the tank, the MIRAS tab peaked at £7.7-billion. By then, it was a question of keeping homeowners happy or hospitals open.
Click to expand...

God bless the Tories and their prudent fiscal sense. Even by selling off everything the country owned (raising 100 BILLION quid), they still couldnt stop the economy going down the toilet.
 
Houses dont seem to be as big as they once were though.. I dont think you get as much bang for your £ these days.
 
Visage said:
God bless the Tories and their prudent fiscal sense. Even by selling off everything the country owned (raising 100 BILLION quid), they still couldnt stop the economy going down the toilet.
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Joining the ERM and pegging the pound at a value way more than it was worth, didn't help :(
 
dirtydog said:
Joining the ERM and pegging the pound at a value way more than it was worth, didn't help :(
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Very true. IMO they saw the economy as something that they could manipulate and control for political gain. Unfortunately it became obvious that its a far more powerful beast than they thought.
 
They learned a painful lesson that the markets are more powerful than they are...

I still remember grinning city dealers on the news telling of how many millions they made on Black Wednesday... :/
 
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dirtydog said:
They learned a painful lesson that the markets are more powerful than they are...

I still remember grinning city dealers on the news telling of how many millions they made on Black Wednesday... :/
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Didnt Georeg Soros make a killing?

I remember it well. People nowadays think tyhat a 0.25% interest rate rise is big news....yet they rose 5% in one day....
 
He made over a billion didn't he?

I remember the day like I remember what I was doing on 9/11 - it was huge news at the time wasn't it :) Hard to believe it is 14 years ago :eek: :eek:
 
dirtydog said:
He made over a billion didn't he?

I remember the day like I remember what I was doing on 9/11 - it was huge news at the time wasn't it :) Hard to believe it is 14 years ago :eek: :eek:
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Yup...i was 16 at the time. I mrember going to school, and being a preciocious little so and so i asked my dad what had happened when I got home. I'll never forget when he said that rates had gone up to 15%.

In hindsight its strange that the government survived. I can readily imagine that, should such a financial catastrophe were to re-occur nowadays, there would be intense pressure on the government to resign en-masse and call an election.
 
I was 19 and I heard about it when I was at work - the older people who had mortgages were most concerned :)

Of course in actuality it was a blessing in disguise because the economy had been in recession for some time, and once the ERM straitjacket was removed and rates were cut, the recovery began.
 
dirtydog said:
I was 19 and I heard about it when I was at work - the older people who had mortgages were most concerned :)

Of course in actuality it was a blessing in disguise because the economy had been in recession for some time, and once the ERM straitjacket was removed and rates were cut, the recovery began.
Click to expand...

And it taught politicians a lesson that they've never forgotten. If it wasnt for Black Wednesday, I dont think Labour would have given up interest rate control. It was if they looked at it and went 'Its a handy tool, but too risky....'
 
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