Thursday, Jun 07, 2007
No FTBs = impending crash
Daily Express: 4 MILLION THINK THEY WILL NEVER AFFORD A HOUSE
THE next generation of home-buyers face average house prices 10 times their salaries, unless more homes are built, an independent housing organisation warned yesterday.
With the property boom forcing average prices up more than £22,000 in the last year, four million young people think they will never be able to afford their own homes, the new National Housing and Planning Advice Unit said.
Posted by wilee @ 11:24 AM (320 views) Add Comment
4 Comments
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1. dohousescrashinthewoods said...
I don't buy this story. I think it's desperate, short-lived, NuLab press-release spin.
I bet there won't be a NHPAU is six months' time. Six weeks, even. I bet they came up with the name after they wrote the release.
As for our professor of Beckham Studies on the radio this morning:
10x salary can have nothing to do with being richer. The richer you are, the larger your debt - in direct proportion.
10x salary can have everything to do with interest rates because they are what the debt costs - what you can "afford".
If you earn 1K and can afford £500:
5K at 10%: £500
10K at 5%: £500
Halve the rate and you can double the debt.
5K debt: 5x salary.
10K debt: 10x salary.
QED income multiple is everything to do with interest rates, nothing to do with "wealth".
Spot the crunch: increasing income multiples when interest rates are rising is a double whammy.
Glaring subtext is that house prices have raced away from incomes, driven by interest rates. Combine income with interest rate and you get the fundamental. If incomes haven't risen then interest rate is the only variable. (SpecuBTLators add a parabolic twist on the way up - and it works backwards on the way down)
Complete the following: House prices increase when interest rates go down. House prices ________ when interest rates go up.
Supply and demand is a hoax. With static or falling incomes after inflation, only interest rates govern fundamental price. Prices will fall as rates rise, end of story.
2. Waiting said...
UUUUH now I understand, look at the graph on the home page, in 2002-2003 hundreds of thousands of homes vanished, right? Supply and Demand in it.
3. Andy H said...
Ten times your salary?
A person earning £30K/year takes home about £1750/month after tax and national insurance. With a 300K mortgage over 50 years they spend all their money on mortgage repayments if the APR exceeds 6.75%. A 25 year mortgage gets 5% APR.
This ignores paying for minor things like food, water, council tax, heating, clothing...
I think that the person suggesting this level of debt is not living in the real world and needs to learn how to use an excel spreadsheet.
4. dobber said...
@dohousescrashinthewoods,
Nail on the head, great comment.