Thursday, Mar 11, 2010
Housing affordability 'at seven-year high'
Daily Telegraph: Housing affordability 'at seven-year high'
When it comes down to it affordability of houses is down to interest rates on mortgages not absolute prices. Absolute prices can rocket as long as the majority focus on "low monthly payements". And at 0.5% base rate and 3.5% inflation those with debts are laughing all the way to the bank.
Posted by nightflame @ 11:54 AM (1308 views) Add Comment
15 Comments
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1. Mazza said...
Yeah, let me know where i can get a mortgage at 4 times my salary with a 10 % deposit with a 0.5% interest rate?
2. 51ck-6-51x said...
yes nightflame,
First it's average salaries, not median.
Second they forget to include people who are not earning.
Third, as you rightly point out, they do not take into account the change in rates over the life of the mortgage, if they were to try a comparison using multiple evolutions of the forward curve under a no-arbitrage model* I don't think they'd be anywhere near a 7-year high.
* Heath-Jarrow-Morton, Black-Derman-Toy, Hull-White, or similar.
3. mark wadsworth said...
Excellent news, that must explain why everybody's rushing to buy a house and sales figures and prices are surging ... oh ... right.
4. matt_the_hat said...
>> try a comparison using multiple evolutions of the forward curve under a no-arbitrage model
In other words make sure the can afford the mortgage when interest rates rocket
5. estrader said...
"And at 0.5% base rate and 3.5% inflation those with debts are laughing all the way to the bank."
Anyone who takes the time to do some simple calculations on compound interest and loan amortization will realise what a distortion of truth the above comment is, they will really be the ones laughing all the way to the bank. Anyone who takes on a mortgage hoping that inflation will be the panacea is a property speculator, pure and simple. You may as well buy a Lotto ticket and hope that winning pays off your debt.
6. mark said...
i see chinas property crash is starting..
7. Askari said...
51ck-6-51x said...yes nightflame,
I concur. Don't be led in to a superficial comfort zone.
The fundamentals are still weak or missing in our economy. Food for thought: in theses exceptionally difficult times, I suggest that investors and institutions buying small houses or properties for capital gain purpose should be halted in order to regain confidence in our economy. Once the economy picks up along with the rest of the western countries and the middle east etc, then one hopes that the rising employment will change the equation at home - creating real demand for goods and services.
8. mr g said...
And all the while, savers are being well and truly shafted.
I found out this afternoon that National Counties Building Society is to reduce the interest rate on this tax year's cash ISA from 3.26% (a cr*p rate to start with) to 1.81% from 6 April.
That's a cut of 44.48% when bank rate hasn't changed for a year, what the f**k is going on?!!
9. alan_540 said...
Affordable? Someone tell the 90% of first time buyers that are priced out in the South.
10. Emily said...
The most important factor missing is wage inflation, which is more critical than interest rates when calculating house price affordability. Not taking into account interest rate changes over the life of a mortgage is forgivable; who knows what they will be afterall. Not taking into account the state of current wage inflation in relation to current interest rates is not forgivable.
"And at 0.5% base rate and 3.5% inflation those with debts are laughing all the way to the bank."
Are you being sarcastic? Wage inflation is close to nowt and consumer prices are going up. How is that a good combination for those with large mortgages? The truth is you're buggered if you save because your money will be worth less and you're buggered if you're in debt because there's little wage inflation. You're also buggered if you own a house, because prices will fall. As far as I can see, we're all buggered, unless you work in the City of course.
11. thelostdecade said...
nightflame, it is wage inflation that erodes the value of debt not the change in the price of a unique basket of goods and services determined by the ONS...
12. thelostdecade said...
nightflame, it is wage inflation that erodes the value of debt not the change in the price of a unique basket of goods and services determined by the ONS...
13. general congreve said...
I for one am not complaining about low interest rates on my remaining sterling savings. I think Gordon Brown did a marvellous job of bailing out the banking system. It gave me ample time to remove a significant part of my capital from banks that may have otherwise collapsed and taken my money with them and allowed me to move it into lovely, reliable gold. A move I am sure to profit from in the coming months and years. Cheers Gordo!!!
14. thelostdecade said...
"gold investing" is yesterday's "property investing". whatever happened to investing for income. i should accept these get rich quick schemes/lazy investing is a natural consequence of the lazy UK population (in general).
15. mark wadsworth said...
@ Mr G, comment 6.
That's one of the key aims of Home-Owner-Ism - keep interest rates down to benefit people who are mortgaged to the hilt, the flipside of which is that savers get shafted. The Home-Owner-Ists say that they want to "encourage saving" and "encourage people to take responsibility" when in fact the reverse is true. They want to discourage saving (as you have now found out at your own cost) and want to encourage people to gamble on ever falling interest rates and loose lending.
In fact, nothing the Home-Owner-Ists say is true. They do not want to encourage a wider spread of homeownership either, as it happens.