House Prices - Where does it end?

[The Mad Rapper]

I just read this over on SKY News.

I am absolutely stunned by this - and since when is £100,000 an average salary exactly?

 

[The Mad Rapper]

It wont end, simple supply and demand

demand far outsrips supply by 100's of thousands a year.

banks aren't refusing mortgages and are finding new and interesting ways to give mortgages to every one and there sons.


so until we start building millions of houses or banks start refusing mortgages the price is just going to go up and up.


even if interest rise rockets I don't think it will have a huge effect. most sensible people will have a fixed rate mortgage so and will have a 2-6 year buffer zone. So we might see a slight dip but that's it.

Why can't we just have a huge crash so prices return to a realistic level and normal people can afford to buy?

Wishful thinking on my part I know, but it's frustrating

 

[The Mad Rapper]

If there was a crash it wouldnt just affect house prices.....

Depends how big the crash is surely?

 

[The Mad Rapper]

I would love it, none of my close family would be affected and I would be able to buy a house.

But I just can't see it happening, I also can't see me being able to afford a house for at least 2 years probably more like 4.

But that's partly my point. Those who do not already own a house are always going to be playing catch up aren't they? If house prices continue to raise at their current rate then they will become rapidly unaffordable for people on a normal wage.

I'd consider normal to be in the region of £30K.

 

[The Mad Rapper]

Prices will stop rising when people stop being able to pay.
However banks are offering 6x joint salary etc which just fuels the price rises.

The Government should make that illegal then - it's pointless, where does it stop? 10x salary? 100x salary?

 

[The Mad Rapper]

Isnt that nanny statism? If the buyer can afford it and the lender is happy with the level of risk then what right does the government have to stop them?

Incidentally, earnings multiples are increasingly irrelevent for large mortgages.

For example, if you ear 20k and have 15k living expenses you can afford 5k in mortgage payments. If you get a 5x wages increase you now earn 100k, but your outgoings dont necessarily go up at all, so you can now afford 85k in mortgage payments, 17x what it was before.

So a multiplier that is appropriate for a 20k income doesnt scale to a 100k income.

How can someone on a 20K salary afford a 100K mortgage? It must be incredibly difficult - you'd be paying it back forever.

Where do you draw the line? If, as others suggest, prices will get higher because of a lack of housing, then there must be a point where people on normal salaries simply cannot afford to buy a house. It does not matter how many multiples of your salary the lenders are willing to loan - lenders have a moral and social responsibility as well BTW.

I just think it's mental that prices can continue to rise, lenders continue to loan more and everyone thinks that's fine?!

 

[The Mad Rapper]

I can't understand why people are saying that buying a house in unaffordable..

At 21 years of age, I have a joint mortgage with my other half worth a full £180k (no deposit). Interest repayments are clocked up at around £800 / month, however our joint take-home pay is around £2500 / month. Account for ~ £500 for bills / month and that still leaves us with a fairly hefy sum of 'spare' money (paying off holidays, car insurance etc).

We are first time buyers in the south of England and it *is* affordable. Ok, so London may be more expensive but it doesn't get much more expensive than here!

That's a blinkered view, not everyone is in a relationship. You ought to be able to buy a decent home in a decent area on a single decent wage IMHO.

You've definately done the right thing buying so young though - probably my single biggest regret that I didn't.

 

[The Mad Rapper]

Why so? I allows less flexibility but offers an investment...

Why do I regret it, because when I was 21 house prices were what I consider to be normal, not increibly inflated as they are now.

Also, I'd of almost repaid half my mortgage by now if I'd started at 21.

 

[The Mad Rapper]

Try buying something on an average salary in the South East. You'll be lucky to get studio / tiny one bed flat, unless you have a shed load of deposit, and i mean shed load.

Nah, I am from the North east originally and I can still just about afford a three bedroom home there. If I was going to buy, I'd buy there.

 

[The Mad Rapper]

I never had you down as an anti-capitalist.....

Tell me - what would the attitude of the banks shareholders be if they turned around and said 'We've lost a load of money because we did the right thing. Sorry about that'

What about pension funds that invest on the stock market? The whole system is predicated on each and every company doing its best to earn as much wonga as possible.

That's what's wrong with the world we live in now though. The West is full of greedy ***** who are more concerned about profit then the good of all.

This topic really doesn't bring out the best in me does it?

 

[The Mad Rapper]

It's not "dead" money as such - in ten years time he will have paid the interest on his mortgage, stopping his mortgage from growing, but hopefully his house will have increase in value. So in 30 years he will still owe the value of his mortgage, but he will own the house. So at the start his mortgage might have been 100k and his house worth 100k. At the end, his mortgage will still be 100k (but will be less in real terms) but his house might be worth 200k.

He still has to find 100K though to pay back the mortgage doesn't he? What happens then? In the past people relied on Endowments, but no-one uses them any more.

How do people on Interest Only mortgages repay the capital?

 

[The Mad Rapper]

The banks should only be allowed to lend 3.5x income with no exception IMHO.

HEADRAT

I agree 100%.

If the people at the bottom of the market cannot afford to buy because of mortgage income multiple restrictions then the prices will have to come down.

At least that's how it appears to me

 

[The Mad Rapper]

Surely buy-to-let is financially viable as an investment rather than an income?

I would say it must be. IIRC, the housing market has traditionally out performed all other investment vehichles, including the stock market in recent years.

The problem is, just like stocks, it's an intangible value which can obviously rise or fall at any time.

 

[The Mad Rapper]

Because I can pay capital as well as Interest back... As a minimum, I have to pay Interest. When funds allow it, I shall pay the remainder of the £100k back bit by bit(as per this example). It relies on people being sensible with their money and not thinking *oo i only have to pay £800 this month, i'll spend the rest of my pay-cheque of pointless crap*

In 5 years I'll sell the house for more than I purchased it, clear the £100k remaining on the mortgage and have more money to put towards a bigger house and so the chain continues...

So the idea is to be debt free by the time you retire?

What happens if you're not? I am not trying to be negative here, there's a lot I do not understand about mortgages. I've never owned a home, and my partners home is mortgage free.

 

[The Mad Rapper]

What about someone on 100k per year - are you really suggesting that they'd only be able to borrow 350k, a mortgage that equates to ~1800 quid a month when they take home ~5000 quid?

Why should a bank not be allowed to grant a mortgage higher than this when it only equates to about third of their take home pay?

My answer to this is because it inflates house prices obviously

 

[The Mad Rapper]

Then you sell your house and pay back what you owe but you're probably still left with a nice amount of money to downsize, chances are you're not going to need such a large home when you retire anyway.

To be honest I see a lot of sence in "interest only" mortgages, there is no way on gods green earth that a house in 25 years time isn't going to be worth much more than you paid for it!

HEADRAT

OK, thanks for explaining that

Are Interest Only mortgages generally cheaper than the other sort? Capital mortgages?

 

[The Mad Rapper]

The chances that it will be empty for periods of time is high.

Location decides this moreso than any other factor IMHO.

 

[The Mad Rapper]

Yes the idea is to be debt free by the time I retire in a house which I am comfortable with. My earnings are expecting to have gone up by that stage. So i'll be 51 years old (wow), own a house mortgage free with 14 years to save up to build a pension off of a reasonable wage.

It's all a gamble and I would rather not be paying for a house but I WILL come off better than had I been renting.

My 'plan' is built up around my parents method of buying... Their house is worth ~ £450k now, with a mortgage of only £90k left to pay and they are both under 45 years old. They plan to clear the mortgage before they are 50, leaving them with a house worth £500k, no mortgage and a HUGE disposable income (~£90k / annum before tax) to build a retirement-egg

Reads like a great plan to me - Good luck

 

[The Mad Rapper]

The more I read this thread the more I feel I ought to buy. For the last few months I've considered buying a two or three bedroomed home in the North-East and renting it to my sister and a cousin. I doubt I'd ever live there myself, but it gets my foot on the ladder and gives my sister an escape from my Mum's

Do the normal buy to let rules apply if you are renting to family?

Can anyone recommend a good online resource I can visit to make sure I understand all of the implications and what responsibilities/liabilities I may have?

 

[The Mad Rapper]

What if your sister moves out, and you cant find a new tenant ... or you lose your job.

I work for the Government in a very specialised field in which there will never be a decrease of work.

My job is as safe as a job can be TBH.