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D179

Lending Multiples Again...

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I am starting to waiver on the affordabilty thing of mortgages. I always thought that the lending multimples that we are benchmarking at historical levels that we see as the 'norm' may in fact be a red herring. We look at historical interest rate charges and we see that the multiples vs affordabilty seem to fit. However now we have low interest rates and that to me means that the 3.5 x multiple cal that we all band about currently does not reflect affordabilty as the cost of borrowing is still significantly less than it was say in the early 90's.

We also talk about interest rates can only go one way, well of course that seems logical but what happens if the mid term range is 3%, I guess that wont force that many into selling up.

I dont know the answer and I know it has been talked about many times but I see are at a cross roads for HPC/HPI. I just think lending multiples vs house prices may not be a good model?

Discuss..

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I am starting to waiver on the affordabilty thing of mortgages. I always thought that the lending multimples that we are benchmarking at historical levels that we see as the 'norm' may in fact be a red herring. We look at historical interest rate charges and we see that the multiples vs affordabilty seem to fit. However now we have low interest rates and that to me means that the 3.5 x multiple cal that we all band about currently does not reflect affordabilty as the cost of borrowing is still significantly less than it was say in the early 90's.

We also talk about interest rates can only go one way, well of course that seems logical but what happens if the mid term range is 3%, I guess that wont force that many into selling up.

I dont know the answer and I know it has been talked about many times but I see are at a cross roads for HPC/HPI. I just think lending multiples vs house prices may not be a good model?

Discuss..

Can you not stick to linking to some vaguely topical headline and saying we're all doomed? Works for most other thread starters and seems to keep the place working smoothly;>

I think that there is a case that the long term opening of capital markets and the development of economic understanding have resulted in a structural lowering of interest rates. Obviously the present ZIRP will not last forever, but I think that the operating range for interest rates may well have contracted and be centred around a lower mean. If this is the case, then affordability may have changed also as you suggest.

It's hard - as ever - to separate volatility around the trend from the trend itself....

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lending multiples at 3.5 times income is sustainable what we have had over recent years wasn't hence why we have had a banking crisis. On that simplistic basis then we will return to 3.5 times lending levels of that for me there is no doubt.

However, I am now of the view that if you are leveraging now could be a good time to buy so long as you fix your mortgage rate. Why? because we have seen the majority of the nominal falls its an inflationary outcome for me from here on in. So, binge yourself my friend get your nose in that trough before its to late and hope you have backed the right donkey.

Of course there are many on here that believe this is going to be deflationary.....................do not buy if you are convinced of this argument.

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I am starting to waiver on the affordabilty thing of mortgages. I always thought that the lending multimples that we are benchmarking at historical levels that we see as the 'norm' may in fact be a red herring. We look at historical interest rate charges and we see that the multiples vs affordabilty seem to fit. However now we have low interest rates and that to me means that the 3.5 x multiple cal that we all band about currently does not reflect affordabilty as the cost of borrowing is still significantly less than it was say in the early 90's.

We also talk about interest rates can only go one way, well of course that seems logical but what happens if the mid term range is 3%, I guess that wont force that many into selling up.

I dont know the answer and I know it has been talked about many times but I see are at a cross roads for HPC/HPI. I just think lending multiples vs house prices may not be a good model?

Discuss..

The correlation between future interest rate movements and future house price movements is a tricky one to manage :

- If you are on a floating rate mortgage, it must be because you believe that rates will stay low for a long time. You are implcitly saying that house prices will remain under downward pressureas rates will only remain low if the economy is in a deflationary mess.

- If you are on a long term fixed rate mortgage, it must be because you think that rates will rise over time. This could be because of bond market failures or inflation. In either case, owning a house is a poor investment relative to other asset classes (inflation linked bonds, gold etc).

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Can you not stick to linking to some vaguely topical headline and saying we're all doomed? Works for most other thread starters and seems to keep the place working smoothly;>

:lol::lol: excellent

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The correlation between future interest rate movements and future house price movements is a tricky one to manage :

- If you are on a floating rate mortgage, it must be because you believe that rates will stay low for a long time. You are implcitly saying that house prices will remain under downward pressureas rates will only remain low if the economy is in a deflationary mess.

- If you are on a long term fixed rate mortgage, it must be because you think that rates will rise over time. This could be because of bond market failures or inflation. In either case, owning a house is a poor investment relative to other asset classes (inflation linked bonds, gold etc).

thats not true when you are borrowing to the max.

you wll take the mortgage that is cheapest today....and max it.....thats where it all goes wrong....most mortgages used to be repayment 25 years or IO over 25 years with a repayment vehicle attached.

flash to 2007, affordabilty means IO and no vehicle, buy with a friend, 125% and get government aid to pay the deposit. these are the inevitable end games of "affordability" criteria.

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flash to 2007, affordabilty means IO and no vehicle, buy with a friend, 125% and get government aid to pay the deposit. these are the inevitable end games of "affordability" criteria.

Not forgetting Liar Loans, the secret weapon of fraud and mass destruction, as eric pebble so rightly tells us.

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Silly question(?)

Would lending multiples stay they same regardless of tax bracket?

they are a guide. not set in stone.

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