Thursday, Jan 14, 2010
Let's all borrow a lot more!
Telegraph: Mortgages 'most affordable' since 1996
'People buying their first property are finding their mortgage payments the most affordable for 13 years, according to research.'
Posted by hpwatcher @ 11:48 AM (1477 views) Add Comment
20 Comments
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1. mark wadsworth said...
Missing figures round:
"First-time buyers spent an average of 14.4pc their of gross income on mortgage interest in November, the lowest figure since May 2004, according to the Council of Mortgage Lenders (CML)."
1. What interest rate are they paying no compared to then?
2. How big is their mortgage relative to their income, now and then?
3. What type of home are they buying compared to 1996?
It's not much consolation if FTB in 1996 could buy a three-bed house for 2.5 times income with small deposit @ 6% interest = 14% of income, and today's FTB is buying a one-bed flat for 4.5 times income with huge deposit @ 4% = 14% of income.
TW4T5
2. jack c said...
Agree with MW
Several articles appearing on this topic today - the key point for me is that they only make reference in the main body of this article to the interest only element of the loan (the headline suggests a different scenario)
Interest rates are being held at artificially low levels - where does that leave the affordability figures once rates begin to rise?
3. brickormortis said...
Do we all remember how the problems in America started? Affordable mortgages became unaffordable when rates rose and/or customers came off the "enticer" rate?
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5. jack c said...
brickormortis - many of the mortgage in the US were never affordable in the first place, hence the term NINJA mortgages ie no income and no job - couple this with a huge amount of fraud and you have the ongoing mess that we are still saddled with today.
6. mountain goat said...
While we dismantling bullish stories any views on this one? Applies to the USA where hp have fallen 50% on average so perhaps not that applicable to the UK yet. Also his data only goes back to the 1960's whereas we are now facing a low-grade depression hangover from a credit bubble not a recession from an inventory cycle, to use Icarus' terminology (see).
Housing Prices and Interest Rates: Do the Math
Historic records show that home prices don't drop when rates rise. The trend is quite the opposite, writes Marc Roth
BusinessWeek
& by the same guy If You Don't Buy a House Now, You're Stupid or Broke
7. shipbuilder said...
mg - the guy is calling the bottom of the US market and he's probably close to right - many states in the US have income/house price ratios of 2 - 2.5. In that case he's right to say buy now with interest rates so low, however the UK is very different - historically prices here are still very high and so an interest rate rise will have much more effect. His reasoning only works when buying at the bottom.
In any case, interest rates are variable whereas debt is not.
8. mark wadsworth said...
MG, it has been broadly agreed on this blog that the impact of interest rates on house prices is nowhere near as one would assume, fine.
But there's still a missing figure - inflation. Perhaps it is "real interest rates" that are more important, i.e. nominal minus inflation. The real interest rate is much more stable, in the region of 0% to 3%, let's say. Or to put this another way, in inflationary times, house prices rise with inflation and nominal interest rates are higher (to keep 0% to 3% ahead of inflation), so the two effects more or less cancel out.
Until we factor that in, Marc Roth's chart is fairly meaningless.
9. letthemfall said...
These figures must be based on a very narrow subset of data, or narrow assumptions. An average earner would have to borrow over 6 times salary to buy the average house, unless they have a huge deposit. Even if they can get the cheapest mortgage, the interest would equate to more than 14% income.
10. it_is_going_with_a_bang said...
"First-time buyers spent an average of 14.4pc their of gross income on mortgage interest in November, the lowest figure since May 2004"
Well thats all very well but we have the lowest base rate in the history of the BOE don't we? So where does that leave the statement.
11. mark wadsworth said...
@ LTF - in reply to your conundrum, that's one of the missing figures! See my comment 1.
Today's FTB is simply buying smaller properties than FTBs in earlier times. Historically, people got married, then bought a 3-bed semi or terrace (their first property purchase) and then had kids. Nowadays, yer FTB might be buying a one- or two-bedroom flat. kids are deferred for another five or ten years.
12. mountain goat said...
Shipbuilder and Mark Wordsworth - thanks a lot for the replies. It must be tempting to American house price bears to become more bullish. Big falls so far and the prospect of low interest rates for years to come.
13. timmy t said...
LTF... narrow subset of data you reckon... By definition, they must be:
1. Employed
2. Taking out a mortgage
3. A first time buyer
yep - reckon your right - wonder what his name is!?!
14. jack c said...
Halifax are bringing this product to the market tomorrow
2 YEAR FIXED RATE of 4.89% - FOR HOMEMOVERS AND FIRST TIME BUYERS - 75% LTV Product fee £1,499
15. mark wadsworth said...
@ Jack C - and? Is that surprisingly low or high interest rate? Is it surprisingly low or high LTV? Is the fee particularly outrageous?
The public have a right to know!
16. quiet guy said...
@mountain goat
Sorry, I'm too tired to dig into the numbers right now but this bit set by bull-o-meter off:
"Marc Roth is the founder and president of Home Warranty of America, which touches just about every part of the real estate industry since it sells through builders, real estate agents, title companies, mortgage companies, and directly to consumers."
So a guy who sells houses for a living says it's a good time to buy. Hmm.
17. shipbuilder said...
12. mountain goat said...
"Shipbuilder and Mark Wordsworth - thanks a lot for the replies. It must be tempting to American house price bears to become more bullish. Big falls so far and the prospect of low interest rates for years to come."
I've seen a few articles recently pointing out that in many parts of the US housing has returned to genuinely affordable when measured against historic wage/price ratios.
Whilst not bullish in the sense of seeing significant rises anytime soon, I would venture that in these affordable areas, waiting for further falls when interest rates are this low starts to look somewhat foolish.
Unfortunately we are nowhere near that here yet.
18. tenyearstogetmymoneyback said...
Good points about Capital repayments.
If you borrow 5 times salary on a 25 year mortgage then the capital repayments will be 20% of your salary,
and thats before tax, pension etc.
Of course if inflation is high then the Capital gets eaten away but the interest rates are higher. In general
the two cancel each other out so 3 times salary would be a good rule whether interest rates are 1% or 10%.
Re the USA don't forget that traditionally the rules are completely diffrent there with 25 year fixed terms and
Jingle Mail if it all goes wrong
19. quiet guy said...
@mountain goat
I'm feeling a bit more refreshed now and had another look.
"As you can see by the graph above, as the economy stabilizes, it is reasonable for us to see 30-year fixed rates climb to 6% within the foreseeable future and probably to a range of 7% to 8% when the economy is humming again."
This is a nonsensical comparison. Whatever is going to happen to the US economy in the next ten years, comparisons going back to the 70s will not suffice. As MW says, it's meaningless.
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