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El_Pirata

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I'm having another bit of banter with the ever-optimistic David Smith. He is clearly of the opinion that house prices are not over-valued and the country is not over indebted:

David Smith:

One thing we should nail is the idea that all mortgage borrowing has been on huge income multiples. We've all heard the chap in the pub saying he was offered seven or eight times salary, and we all know about the self-certified mortgage scam (a tiny proportion of lending). But the average income multiple for first time buyers is 3.21, and for movers - existing homeowners - 2.92 - Council of Mortgage Lenders' data.

El_Pirata:

I find this statistic very hard to reconcile with personal experience. Don't forget that many mortgages are "self-cert" - you make up your salary. So what goes into the statistics as 3.2x is actually 6x (or 10x in the case of a friend).

And if it is indeed correct - how do you account for the fact that average house price is a far greater multiple of the average wage? In many areas the average wage will not buy event the cheapest flat at 3.5x. Common sense suggest there ought to be some correlation.

David Smith:

There are two answers to that. One is that income multiples will only gradually affect the current high house price-earnings ratio. The other is slightly more involved. Lenders are typically leaving themselves a margin of error - loan-to-value ratios are usually no higher than 85% - 110% was not unknown during the late 1980s' boom. This means first time buyers need deposits. Some of these may be coming from their parents' equity withdrawal. The older generation's capital gains, in other words, are being ploughed back into the housing market - to an extent at least.

Now, firstly, could someone tell me what proportions of mortgages are self-cert? I think I remember it being something like 30%. We have some experts on here (Apom, Eric Pebble)

Secondly, any other thoughts on this? What is the long-term house prices to wages ratio?

How else could this all be explained?

Something smells very fishy about these figures to me!

(PS In case anyone thinks this is pointless, I think it is important to put the ideas and theories we develop here to the test of one of the country's foremost economists. And I think we can take him on and win!)

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I'm sure David Smith is intelligent enough to come onto this website, and see you trying to gang up on him.

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One is that income multiples will only gradually affect the current high house price-earnings ratio.

I would also ask in your next correspondence what his justification / reasoning is for the above. He mentions it in passing like its obvious.

Unfortunately I think what he means is that not everyone took out their mortgages recently so many people have old-fashioned 3.5xsalary mortgages and it takes a while of new people taking on higher earnings ratio mortgages for the new higher level to become the norm.

Whilst that is kind of true it nevertheless remains true that anyone wanting to move up the ladder has to take on a much larger mortgage, many more times their salary. So in order to sustain current prices people have to buy at these prices which means ftb or not they have to take on a much larger mortgage, not just an extra £100K but much more.

But no, maybe its just me, but the longer I look at that statement the less and less it makes any kind of sense.

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I'm having another bit of banter with the ever-optimistic David Smith. He is clearly of the opinion that house prices are not over-valued and the country is not over indebted:

David Smith:

One thing we should nail is the idea that all mortgage borrowing has been on huge income multiples. We've all heard the chap in the pub saying he was offered seven or eight times salary, and we all know about the self-certified mortgage scam (a tiny proportion of lending). But the average income multiple for first time buyers is 3.21, and for movers - existing homeowners - 2.92 - Council of Mortgage Lenders' data.

El_Pirata:

I find this statistic very hard to reconcile with personal experience. Don't forget that many mortgages are "self-cert" - you make up your salary. So what goes into the statistics as 3.2x is actually 6x (or 10x in the case of a friend).

And if it is indeed correct - how do you account for the fact that average house price is a far greater multiple of the average wage? In many areas the average wage will not buy event the cheapest flat at 3.5x. Common sense suggest there ought to be some correlation.

David Smith:

There are two answers to that. One is that income multiples will only gradually affect the current high house price-earnings ratio. The other is slightly more involved. Lenders are typically leaving themselves a margin of error - loan-to-value ratios are usually no higher than 85% - 110% was not unknown during the late 1980s' boom. This means first time buyers need deposits. Some of these may be coming from their parents' equity withdrawal. The older generation's capital gains, in other words, are being ploughed back into the housing market - to an extent at least.

Now, firstly, could someone tell me what proportions of mortgages are self-cert? I think I remember it being something like 30%. We have some experts on here (Apom, Eric Pebble)

Secondly, any other thoughts on this? What is the long-term house prices to wages ratio?

How else could this all be explained?

Something smells very fishy about these figures to me!

(PS In case anyone thinks this is pointless, I think it is important to put the ideas and theories we develop here to the test of one of the country's foremost economists. And I think we can take him on and win!)

in 2004 1/4 of all monies lent through mortgage was income non verified.

Which had allowed 1/5 of all money outstanding as mortgages at that time income non verified

thats the latest figures I have.

but they are accurate.. and have never been questioned

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in 2004 1/4 of all monies lent through mortgage was income non verified.

Which had allowed 1/5 of all money outstanding as mortgages at that time income non verified

thats the latest figures I have.

but they are accurate.. and have never been questioned

Thanks a lot Apom. By the way do you have the source for that?

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EP

Here's some 2003 stats.

http://www.findaproperty.com/story.aspx?storyid=6152

A Third Of Loans Are Unchecked

27 May 2004 News Item See also

New figures from the Council of Mortgage Lenders reveal that one third of all loans in the second half of 2003 were approved without proof of income...The research carried out by the CML into what they call income non-verified (INV) lending reveals that £42.5 billion was advanced in the second half of 2003, amounting to 28.3% of total gross lending.

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One thing we should nail is the idea that all mortgage borrowing has been on huge income multiples. We've all heard the chap in the pub saying he was offered seven or eight times salary, and we all know about the self-certified mortgage scam (a tiny proportion of lending). But the average income multiple for first time buyers is 3.21, and for movers - existing homeowners - 2.92 - Council of Mortgage Lenders' data.

Where the hell does he think he is living.

Devon the lowest price for a two bed near me I have seen is £130,000 and that was a haggle for a new build.. with cash back..

the average salary here is not almost £40,000

even a £30,000 deposit..

Looking for the source... now.. bare with me.. new pc and I lost my favourites..

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EP

Here's some 2003 stats.

http://www.findaproperty.com/story.aspx?storyid=6152

A Third Of Loans Are Unchecked

27 May 2004 News Item See also

New figures from the Council of Mortgage Lenders reveal that one third of all loans in the second half of 2003 were approved without proof of income...The research carried out by the CML into what they call income non-verified (INV) lending reveals that £42.5 billion was advanced in the second half of 2003, amounting to 28.3% of total gross lending.

If you really want a laugh this just shows how pathetically out of touch the FSA were.

Growing Market

At the time, the FSA estimated the self-cert market to be around 6% of total balances outstanding and 8% of new loans approved, but they gave no figures on fast-track mortgages.

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I'm guessing he is quoting average LTV figures.

Of course, he does not quote corresponding figures for when the

'gross' multiple was closer to 3.5, maybe then LTVs are much less than

the 3.2 he quotes.

The implication is that HPI is due to people using ever larger deposits

- yeah, right.

I think we have enough evidence from the RICS overvaluations,

and Lie To Buy scams to know that in reality 100-130% mortgages

are today quite the norm, one way or another, and that the

VI's know this, look the other way and fudge the numbers....

ABB

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the average mortgage.. wasn't that up to £130,000.. last year.. being taken out..

that makes the average salary..

This bloke needs to touch base.. wake up and smell the coffee and pay more attention..

the average mortgage.. wasn't that up to £130,000.. last year.. being taken out..

that makes the average salary..

This bloke needs to touch base.. wake up and smell the coffee and pay more attention..

http://www.alansteel.com/archives/articles_quotes.aspx?id=67

look at these nubers.. the fact that we are told that FTB's are less then 8% of the market.. and sipps are gone.. and BTL .. new builds are stopping.. ask this guy who is going to buy

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tell him to look at the sipps comments..

Taking the strain of the FTB's..

Well I suppose it does... by removing what we were told would be 50% of the buyers for these two beds..

What do you think the two beds were built for... BTL? and Sipps?

yes... I think so.. now are they gone?

tax loophole gone.. and profit margin priced out..

FTB's are at 30% in a healthy market.. they are at below 7% according to this article..

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Apologies El_Pirata, I've not read the whole thread but I wouldn't get bogged down arguing statistics with him.

Merely remind him that Prices are set at the Margin.

If demand outstrips supply by 1%, prices may rise 100% - unlikely, but there's no direct correlation.

Now, what's greater, supply or demand, Hhhmmmmm........................

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most BTL numpties with more than 1 property have zero deposit.

They use the 'increaee' in the value of their first btl as the deposit on their second.

I.e. It is ALL borrowed money.

Ask him why we have DOUBLED the amount of borrowing over the last 6 years if wages also haven't doubled - if the LTV was to stay at 3.5, wages would need to double too, which they havent.

What he's saying is that clever aqccounting tricks make it LOOK as if its still 3.5, and 'thats good enough for me'.

A chant last heard in the board room of Enron, 24 hours before fan+shit+hit

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I read David Smith's piece and also his shadow MPC report today. Interesting that only three of them are calling for a rate cut (one of whom, Prof Minford, doesn't seem concerned about inflation at all). Others see the upside risks as being more pressing. Smith himself is still banging the rate cut drum, but seems to be getting much less complacent about the state of the economy.

A couple of comments - new builds are surely finished. I saw a development recently (near Manchester) where the developer was offering £400 p.m. towards mortgage payments for two years. OK, you can build that discount into the price, but it surely shows that they're desperate to attract punters.

Startling to see in today's newsblog that FTBs are down to 7%. Bear in mind that that's in a climate where one EA saw its lowest sales in 30 years.

When there are hardly any FTBs out there and when the economy looks set to deteriorate, how can the market keep going even at its present level?

And yet there are predictions out there that values will double in ten years. Beats me.

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Why do you listen to a bloody economist? :blink:

Economics isn't a science, as the quotes on our front page shows.

Why not listen to what the market is telling you?

It did 20%yoy now it's doing bugger all. The FTBs were 50% now down to 7%.

Where's the problem here?

The market is increasingly saying "the price is wrong".

:P

Edited by megaflop

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but the joy of it...

3.5 times salary borrowing 8 years ago..

3.5 times salary borrowing now after prices have doubled and this economic legend thinks that he is seeing the whole picture..

To get to tangle with one of the "great economic" minds in this way is superb..

Made better by him being wrong..

Less then 7%.. spin is span..

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Here's the next installment:

David Smith:

House prices have risen - have been "revalued" in market parlance - because of:

(a) Low long-term real interest rates

(B) Low short rates (addressing the so-called front-end loading problem).

© A rise in the employment rate - the proportion of the working-age population in work.

(d) More double-income households.

(e) A shortage of housing supply.

Now a and b I can believe, but I think c,d and e have all been debunked on here. Can any hpc experts give me some pointers?

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  • 301 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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