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eric pebble

Economy Will Never Ever Get Better Unless And Until Property

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The World Economy will NEVER EVER get better unless and until the cost of a home is set at a maximum of 3 x real, checked and double-checked annual individuals' income, or less.

I have never been more sure of this.

Property is THE most expensive item in peoples lives.... They eat, drink, sleep - and - most of all - WORK nearly all of their lives to get a roof over their [and their families'] heads. They STRUGGLE like hell. They CANNOT afford more than this - and successfully feed, clothe and educate themselves/a family if the cost exceeds 3 x salary.

And - today - the cost is simply too high. It is utterly ludicrous. People will FOREVER be in debt, and the World Economy will NEVER run properly UNLESS AND UNTIL the 3 x annual earning [NON-LIAR] rule is set in concrete.

There is no way round this. The Vested Interests can lie, cheat, obfuscate, try and fiddle the figures as much as they like -- the truth remains -- Cost of roof over all out heads must not exceed 3 x REAL, NON-LIAR annual income.

Edited by eric pebble

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Although I totally agree with you, this is not going to happen.

I know someone who works in GB's office and she was telling me they are trying to think of ways to get people to borrow MORE not less. On a slightly different part of the conversation she said they were considering introducing max interest rate to stop people from being ripped off etc, I said why not introduce limits instead on the amounts people can borrow (eg 3 x monthly take home pay for unsecured borrowing and 3 x annual pay for housing) and she said that government very against this because it was up to people to determine what they wanted to borrow not up to the state.

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Are there any other markets where you would like to see state price fixing? Perhaps food and clothing should be included, as well as property rental? Should the state also set the price for labour and perhaps control what is produced, in what quantity, how and by whom?

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If you need a mortgage, you can't afford it.

If you can't afford a 3x single income mortgage, you probably can't afford rent..

Hmmm. Railway arches for all it is, then.

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Are there any other markets where you would like to see state price fixing? Perhaps food and clothing should be included, as well as property rental? Should the state also set the price for labour and perhaps control what is produced, in what quantity, how and by whom?

It's about affrodability.

This isn't about "price fixing". If a house is priced at £300k - someone who earns £100k pa can come along and buy it.... Someone earning £125k pa can come along and offer £375k for it. But the person earning £30k pa clearly be unable to afford it -- even if the dishonest Moneylender/Mortgage "Broker" tried to "persuade" or "urge" him he could afford it.

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Are there any other markets where you would like to see state price fixing? Perhaps food and clothing should be included, as well as property rental? Should the state also set the price for labour and perhaps control what is produced, in what quantity, how and by whom?

Some markets need more regulation than others.

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This isn't about "price fixing". If a house is priced at £300k - someone who earns £100k pa can come along and buy it.... Someone earning £125k pa can come along and offer £375k for it. But the person earning £30k pa clearly be unable to afford it -- even if the dishonest Moneylender/Mortgage "Broker" tried to "persuade" or "urge" him he could afford it

eh?

People can afford more than 3 x income.

You want the government to step in and prevent them from taking a 4 x income mortgage?

Some markets need more regulation than others.

Yes comrade

Edited by bateman

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Let us suppose that a lender could offer a loan at 1% for the loan term of 25 years. The loan repayment would be half that of a borrower at 7.5%.

Our 1% borrower could pay back twice the amount as our 7.5% borrower, perhaps allowing him to live in more comfortable accommodation, closer to work and decent schools, in a neighbourhood less exposed to crime and drugs, but Eric's new law would prevent him from ever doing so.

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There is no way round this. The Vested Interests can lie, cheat, obfuscate, try and fiddle the figures as much as they like -- the truth remains -- Cost of roof over all out heads must not exceed 3 x REAL, NON-LIAR annual income.

With all due respect, aren't you an OPTIMIST :P ...

3x is determined by what? By 1) willingness of the banks to lend that type of multiple over 2) 25-30y period 3) at ridiculous and government dictated rates and 4) willingness of the borrowers to borrow that multiple. Can't we foresee a significant period of, say, sub 2x prices due to property turning into an ugly duck down the line? If the debt hangover due to the biggest debt binge ever brings hatred to leveraged property, can't we expect pricing levels not seen in generations?

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IMO, the problems go far deeper than just mortgage multiples - these are just the symptoms which manifest due to the underlying system we have.

Monetary reform and a better way to redistribute land (land value tax or otherwise) would be much more useful. Without the former, people are given as much rope as they need to hang themselves and without the latter it gives them no choice except to put their head in the noose.

Even if you rent, you are still at the mercy of others doing the above, pushing up rental prices too. You can't escape the system, other than living on the street, which doesn't seem very appealing. Unless you have your house and land bought outright already, that is, which is very difficult to do with today's prices.

Capping mortgages limits the damage of the symptoms, but it still doesn't get close to fixing the root cause.

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eric do you really believe this?

Interest rates are the key not house prices. My mortgage now is 300 pounds a month compared to 1200 pounds a month 1 year ago.

Low interest rates and low house prices will have the same effect on inflation as people ultimately will have more money inflation will go up and where inflation goes interest rates will follow.

Therefor the payments on a 3 x salary house will be the same as the payments on a 5 x salary house. How does that benefit the economy.

I can buy a 3 x salary house easily now which would be perfect adequate but I desire something exceptional and detest the adequate.

Are you saying that the exceptional houses should drop to 3 x my salary or that I should never be allowed to buy them or should not strive to always achieve my dreams?

What about all the other bubbles. If you stop property bubbles you will get a bubble somewhere else perhaps even more painful for the sheeple to take?

I'm not saying that cheaper house prices are a bad thing just that there a million complexities and it is not as simple as you say.

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eric do you really believe this?

Interest rates are the key not house prices. My mortgage now is 300 pounds a month compared to 1200 pounds a month 1 year ago.

Low interest rates and low house prices will have the same effect on inflation as people ultimately will have more money inflation will go up and where inflation goes interest rates will follow.

Therefor the payments on a 3 x salary h....../

I'm not saying that cheaper house prices are a bad thing just that there a million complexities and it is not as simple as you say.

Banks/Building Societies had a 2 x then 3 x rule in the past. Did we get a Worldwide Economic Catastrophe aka "Credit Crunch" then? Nope.

By and large - take interest rates to be around 5% as a long term average.

Everything is relative. Things would balance out in the end. Having 3 x salary as a fixed rule would stabilize the whole property market and the Worlds' Economies in around a decade. We need that stability. Volatility in property prices and thus in borrowings has led to massive instability - indeed catastrophe.

People need stability above all else to have a happier life.

Edited by eric pebble

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eh?

People can afford more than 3 x income.

You want the government to step in and prevent them from taking a 4 x income mortgage?

Yes comrade

On what basis do you think that people can 'afford' more than 3x income mortgages and is this on the historically low interest rates argument? I think we can say with a degree of certainty that IRs will remain low for the next couple of years... but five, ten years from now?

Homebuyers in the last decade have been forced to compete with property 'investors'. Whereas 3x income used to be the norm, in 2007 120% 5x JOINT income mortgages were commonplace. Perhaps you think it entirely reasonable for a young couple to pay a quarter of a million pounds for a tiny one-bed shoebox in a not-so-salubrious area?

Eric, you're entirely correct. The mortgage market does need more regulation. FFS, buying a £3,600 fixed-term ISA in a relatively low-risk investment is more heavily regulated by the FSA than mortgages - which remains for most people the biggest financial decision of their lives.

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The World Economy will NEVER EVER get better unless and until the cost of a home is set at a maximum of 3 x real, checked and double-checked annual individuals' income, or less.

Have you seen the articles today about excessive executive pay? It's fat cat pay that's killing the world economy.

Some guy earning £36.8m in 2008 compared to £22m in 2006. Silly pay is now the norm in all industries and as a result all goods are more expensive than what they should be, so disposable income doesn't stretch as far. A car boss in europe recently walked away with a 50m euro golden handshake - how much has that added to the price of each car they sell?

To try maintain the fat cat pay while demand is dropping, they will reduce costs which means job cuts. This will reduce demand further.

This fat cat pay has also fuelled HPI from the top down. While there are fat cats awash with money buying holiday homes all over the place how can prices drop back to 3 times salary for people on normal salaries?

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Are there any other markets where you would like to see state price fixing? Perhaps food and clothing should be included, as well as property rental? Should the state also set the price for labour and perhaps control what is produced, in what quantity, how and by whom?

Actually, I'd just like to see no state interference in money. You know, setting interest rates at stupidl low levels and printing it like it was going out of fashion.

I guess you don't mind that though...

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On what basis do you think that people can 'afford' more than 3x income mortgages and is this on the historically low interest rates argument? I think we can say with a degree of certainty that IRs will remain low for the next couple of years... but five, ten years from now?

Homebuyers in the last decade have been forced to compete with property 'investors'. Whereas 3x income used to be the norm, in 2007 120% 5x JOINT income mortgages were commonplace. Perhaps you think it entirely reasonable for a young couple to pay a quarter of a million pounds for a tiny one-bed shoebox in a not-so-salubrious area?

Eric, you're entirely correct. The mortgage market does need more regulation. FFS, buying a £3,600 fixed-term ISA in a relatively low-risk investment is more heavily regulated by the FSA than mortgages - which remains for most people the biggest financial decision of their lives.

Most people move every seven years. The biggest risk would be negative equity.

The 120% 5x joint mortgages were a tiny percentage of the market in the UK, which is why we are seeing so few repossessions.

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Guest KingCharles1st

Eric- people are so desperately wanting to believe in being a slave to money- they can't see any other way of life.

FFS- in the old days, you staked out a bit of land, built a bloody house on it- well- you and your mates did. Then you all went off and built a house for another mate- ****** all that mortgage and planning shit

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Eric, you're entirely correct. The mortgage market does need more regulation.

Well, if you think that the treatment of symptoms is the solution to the disease, I can understand the logic. But if you want to treate the causes of the disease and eliminate it altogether, no regulations of this kind are needed. Remove moral hazard issues by less regulation and social guarantees and bank shareholders will be forced to properly manage their risks and no stupid loan terms, rates and multiples would be available.

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Got to say I agree with Eric. Restrict prices to ~3x income for the average place. 20-30% deposit required. Who cares if interest rates are low if prices are allowed to get out of control again?

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if people (nohpc im talking to u) think interest rates are staying this low ad infinitum they are more deluded than i imagined was possible, the banks product its selling is debt, u think it is willing to get such small returns on such large debts for very long at all?

When i purchased my first home i paid £57,000 and was earning £25,000, i borrowed £50,000 and my monthly repayments were £400+ a month on a 25 year mortgage......interest rates at this time were relatively normal and the housing bubble hadn't started, at the height of the bubble this same house was "worth" £200,000 and my wage was still the same as manufacturing was struggling and we were on year after year pay freezes......the cheapest houses which previously ranged from 20-30,000 now cost 90-100,000 and yet the people buying them were earning the same low wages.......if this is a picture that sounds even slightly sustainable i must be missing something..........how does a person earning minimum wages afford a £100,000 mortgage.......maybe they can when interest rates are .5% but what happens when interest rates return to NORMAL

LOGIC DICTATES HOUSE PRICES MUST FALL, doesn't it?

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Interest rates are not everything, short term they are very important but long term they just cloud the overall picture.

If there is some rational relationship between general inflation and interest rates such as rates being equal to inflation + something to account for risk + something to account for defered gratification ( Any investment outside of that is making a loss so the investor will not last long) then all low rates do is spread the cost of the purchase out over a longer period of time. Back in the 3x salary, high interest days of today's grandparents initial payments were brutal but after 5-10 years they dropped way down on your monthly list of outgoings and their purchasing power increased. In todays 5x salary and low interest ( and low wage inflation) payments are brutal for most of the terms of the mortgage and you never get your purchasing power back.

5 x is huge. 30-40% of your salary is gone to the tax man so it is more like 7 years of your take home pay. Assuming you plan to eat, wear clothes and need the use of some form of transport to work and stay alive then ~50% of your salary is all you'll have left over, so we are talking about every last penny you earn for 14 years

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. Remove moral hazard issues by less regulation and social guarantees and bank shareholders will be forced to properly manage their risks and no stupid loan terms, rates and multiples would be available.

But they haven't done this. They F*CK up every time.

The next financial crisis

Like a patient at high risk of heart attack, the world economy is likely to crash and burn again if it keeps gorging on debt

http://www.guardian.co.uk/commentisfree/20...ial-crisis-debt

Dark days when banks reached brink of oblivion

http://www.guardian.co.uk/business/2009/se...anking-treasury

Edited by eric pebble

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