House Prices - Where does it end?

Glaucus · 11 Apr 2007 at 13:21

$loth said:
Do interest rates have an effect on the housing market? I heard that when they get too high that it can cause a decrease in house prices.

of course they do, the higher the interest rate, the higher the monthly repayment. But only a fool would get out a non fixed rate mortgage at the moment, but there are plenty of them about. They hope they might save a few quid. But in reality interest rates can only go one way and hats up.

cleanbluesky · 11 Apr 2007 at 13:21

The Mad Rapper said:
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.

I'd love the idea of cheap property. It would make life so much easier, cheap premises, cheap mortgage, etc. etc.

The Mad Rapper · 11 Apr 2007 at 13:22

VIRII said:
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?

scorza · 11 Apr 2007 at 13:24

AcidHell2 said:
of course they do, the higher the interest rate, the higher the monthly repayment. But only a fool would get out a non fixed rate mortgage at the moment, but there are plenty of them about. They hope they might save a few quid. But in reality interest rates can only go one way and hats up.

/Shrug, but the people I've spoken to said they are expecting interest rates to drop below current levels within a couple of years. Now that people have such huge debts (not necessarily a bad thing), an interest rate rise will have a much larger impact on disposable income than in the past. No-one's got a crystal ball however.

Third Opinion · 11 Apr 2007 at 13:25

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

First time buyers have largely been replaced by property developers adding to their portfolio's. Anybody borrowing 5-6 times salary needs their head testing IMO.

johnny6 · 11 Apr 2007 at 13:25

I was talking about this just the other day with my girlfriend, she works for a UK Bank and they have been discussing this very matter recently.

One of the 'facts' that seems to have come out is that the bank do not see a slow down/crash in the market for the next 9 years at least.

The fact is banks are lending out more and more money over longer periods of time just so people on the average wage can get on the property ladder. Until the banks turn round and say no more there will be no crash.

cleanbluesky · 11 Apr 2007 at 13:25

What happens to a mortgage when a person becomes bankrupt?

Visage · 11 Apr 2007 at 13:25

Tommy B said:
Yes that is correct. That's why the MPC keep putting the base rate up.

Bull.

The MPC put the rate up because inflation is running high. Higher interest rates = lower disposible income for people with mortgages = less upwards pressure on prices = lower inflation.

rossyl · 11 Apr 2007 at 13:25

VIRII said:
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.

but what sort of repayment are you looking at on that?

Surely the percentage of your monthly salary that goes on a repayment will be very large.

lozza23_uk · 11 Apr 2007 at 13:26

i dont know what to think any more really. started casually looking at property this time last year. 135k for a 1bed in a particular area near me. right this very minute they are 150k. not bad for a year.

so I am biting the bullet (but being choosy at the same time) and working too hard to try and get in to my first place. when I find it I will let you know.

then everyone can come round for a party. will all have to sit on cardboard boxes though...as all my money will go in STAMP DUTY and solicitors fees.

scorza · 11 Apr 2007 at 13:26

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

Why? As long as you can make the repayments whats wrong with it? I believe that the 6x salary mortgages are only offered in exceptional circumstances e.g. salary of £100k in the first place, and you'd have to convince them that you can make the repayments.

The easiest way for the government to reduce supply pressure on the housing market would be to increase the penalties of second home ownership.

Mr Nice · 11 Apr 2007 at 13:26

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

But they never will. Think of the lost stamp duty revenue.

cleanbluesky · 11 Apr 2007 at 13:28

rossyl said:
Surely the percentage of your monthly salary that goes on a repayment will be very large.

Yes, but it seems that house ownership is increasingly considered 'vital' and given the present option of either paying a LOT of your joint salary OR having no cheaper option - what would you do?

scorza · 11 Apr 2007 at 13:28

cleanbluesky said:
What happens to a mortgage when a person becomes bankrupt?

The mortgage company re-possess the home.

Visage · 11 Apr 2007 at 13:29

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

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.

Third Opinion · 11 Apr 2007 at 13:29

scorza said:
The easiest way for the government to reduce supply pressure on the housing market would be to increase the penalties of second home ownership.

No way. What would one talk about about at a dinner party if one couldn't afford at least 2 buy to lets?

Visage · 11 Apr 2007 at 13:30

Mr Nice said:
But they never will. Think of the lost stamp duty revenue.

I suspect its more due to the fact that people are more likely to vote for the incumbent party if they feel financially secure. Rising house prices are a strong factor in that.

Visage · 11 Apr 2007 at 13:31

scorza said:
The easiest way for the government to reduce supply pressure on the housing market would be to increase the penalties of second home ownership.

I agree, but it will never happen - too many votes to lose.

ci_newman · 11 Apr 2007 at 13:31

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!

Third Opinion · 11 Apr 2007 at 13:32

Visage said:
I suspect its more due to the fact that people are more likely to vote for the incumbent party if they feel financially secure. Rising house prices are a strong factor in that.

I strongly believe this is what has won Labour the last election. People have a false sense of wealth and many are borrowing to live well beyond their normal means. This helps are consumer led economy.