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lombardo

Why Cant The Banks Offer Bigger Mortgages?

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Some have made the argument that prices cannot go much higher because banks offer mortgagees that are 4 to 6 times the current household salary. That seems a reasonable argument only if the banks do not increase the amount lent.

Consider the following:

1, The average weekly household expenditure in London is about £600 a week. http://webarchive.nationalarchives.gov.uk/20160105160709/http://www.ons.gov.uk/ons/rel/family-spending/family-spending/2015-edition/index.html

That is £7200 a year.

2, Median salary is about £30k in the same locations. Thus for a couple it could get to £55k. After tax it is about £43K.

3, 43000 - 7200 = 35800. That is how much could potentially be squeezed from a couple for rent/mortgage repayments.

4, £35k * 40 years mortgage repayments is £1.4 million.

£1.4 million is how much a typical mortgage could be. Thus a potential doubling of current house prices.

Yes I know that there are other expenses (holidays, weddings etc) and taxes - but my point is that even if there is much less than £35k a year to spend on mortgage payments, there is much more that the system can squeeze from the median/average dude. And the average dude is dumb enough to do it.

Thus we have not reached peak prices. Eventually we may see people accepting even smaller homes for stupidly higher prices.

For this to happen all banks have to do it increase how much they lend.

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Some have made the argument that prices cannot go much higher because banks offer mortgagees that are 4 to 6 times the current household salary. That seems a reasonable argument only if the banks do not increase the amount lent.

Consider the following:

1, The average weekly household expenditure in London is about £600 a week. http://webarchive.nationalarchives.gov.uk/20160105160709/http://www.ons.gov.uk/ons/rel/family-spending/family-spending/2015-edition/index.html

That is £7200 a year.

£600 x 52 = 31k, rather than 7k so you may want to re-check your math.

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OP can't even spell his name correctly. I'll help…

L O B O T O M Y

What a nice welcome to the forum :huh:

BTW I am dyslexic, so I do make these types of errors.

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For this to happen all banks have to do it increase how much they lend.

You need to read up on the Mortgage Market Review (here) and the FPC soft-cap (here).

The structural answer to your question is that Bank of England target the so-called Debt Servicing Ratio (DSR) of households and they've regulated mortgage lending to owner-occupiers so that DSRs don't go too far north of 30%-35% even if/when mortgage rates return to slightly higher levels.

Re-do your calculations with DSRs in mind and you'll get your answer. It's not owner-occupiers paying repayment mortgages with earnings that is giving us 9%-ish HPI.

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What a nice welcome to the forum :huh:

BTW I am dyslexic, so I do make these types of errors.

It's rough around here, but don't let that put you off. Opening up with a thread about house prices going higher and higher doesn't mean you are trolling, but it's a classic troll play so getting roughed up goes with the territory.

Welcome to the forum.

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You need to read up on the Mortgage Market Review (here) and the FPC soft-cap (here).

The structural answer to your question is that Bank of England target the so-called Debt Servicing Ratio (DSR) of households and they've regulated mortgage lending to owner-occupiers so that DSRs don't go too far north of 30%-35% even if/when mortgage rates return to slightly higher levels.

Re-do your calculations with DSRs in mind and you'll get your answer. It's not owner-occupiers paying repayment mortgages with earnings that is giving us 9%-ish HPI.

If the BoE were to increase this rate would there be any public notice or consultation? It wouldn't surprise me. The op made a good point I'd say.

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Looking at the table, the amount is £531 which includes housing/rent costs.

You would have to remove that figure and adjust figures for anticipated energy/utilities/maintenance bills on owning a new house. This will then give you a "disposable", or non-housing related available income figure that could be used as the basis for a loan multiplier. Saying that, the quoted housing/rental figures in the table look rather low, especially if related to London/south east.

These figures relate to 2014 which also should be adjusted to today's figures seeing as many things have changed in price/inflation.

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