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apom

When The Ladder Broke.

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1: Low Inflation

Loans do not shrink as part of the earned salary.

2: Massive capital borrowing and low Interest Rates.

The higher the capital, the longer it takes to pay of meaningful chunks.

Percieved "affordability"* is a temporary thing, the structure of the loan has changed and the amount that is paid of has also changed.

The above two factors have broken the ladder in a very significant way.

It may seem complicated.

but sit back.

think.

People moved up the ladder when they could afford more from their salaries.

This was when high IR's meant that the capital was smaller and paid of faster. and inflation would carry salaries up and away from the mortgage repayment oulay.... People waited until they could afford it. They still are..

It's broken the Ladder.

Mervin King said that the main cause of a crash would be when people began to realise this.

It didn't get the same press coverage as estate agents opinion's or mortgage lending companies.

but it explained the economic structure of large loans in a low IR's and low inflation environment.

* Percieved affordability, lowest levels of FTB's in history, with the average age growing by a year almost every year..

Bulls, the above economic argument cannot be argued.

Its just fact.

Edited by apom

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What everyone in the thread has ignored is the general investment climate during the inflation of the bubble.

Interest rate have fallen, which meant that bond yields are poor.

Shares were a money hole from 2001-2003. Where do you put your money? Not in the housing market which is "enjoying" 20% pa increases!

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are they really bothered when everyone knows they can write it off in 6 months??

I wouldnt be.

Can you go bankrupt and keep your house if you have a loan secured on it??

I really hope that you can't... that might sound harsh for families etc... but they should be moved to social housing/HB rentals not be allowed to keep their house.

Otherwise my plan would be:

1) Buy biggest possible house

2) Take out as much unsecured credit as possible

3) Buy gold

4) Go bankrupt

5) Live off of gold in my nice big house and work in the black market.

Can anyone confirm what the rules are regarding bankrupts holding onto property assets???

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A quick thought on affordability.

In about 1990 mortgage payments as a percentage of income peaked at about 65%, at the same time inflation peaked at 9%.

The key point to note is that at 9% inflation an additional 7% of the loan is paid off every year compared with today.

7% of the average (£110,000) loan equals £7,700, or 30% of the average (£26,000) income.

So although today's 43% of income looks affordable if we tried to repay the loan at the same rate as in earlier years that figure would jump to 73% of (gross) income, or roughly the whole of a persons after tax income.

A final point. There is an interesting link in the pinned credit tightening thread that says that the US Housing board recommends that housing cost should not exceed 28% of income, that includes capital repayment and property taxes.

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1: Low Inflation

Loans do not shrink as part of the earned salary.

Not to sure about the inflation part

Officially we have low inflation- but we know that inflation is racing away – so in 10 years time that £200000 mortgage will look like nothing.

Will we regret not borrowing money to buy something that won’t be eroded by “invisible” inflation, I am defiantly worried about having money in the bank

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Can anyone confirm what the rules are regarding bankrupts holding onto property assets???

I believe all assets held within the last (five)? years will be pursued to clear debts to creditors, i.e. you can't just flip your home into your wife's name and then go belly up. Assets include houses, overseas property and anything else that can be realised for cash.

I am sure that there are structures you can put in place to protect assets in the case of bankruptcy. There is a case in NZ were a guy is bankrupt and owes millions of dollars but he still has multiple houses, sports cars and all the other trappings of the rich. The web of structures he has in place makes it hard to get to his assets.

The problem also is that if you take out say 100k on credit cards, cash it in and go bankrupt, you are also into the realms of fraud, as it can be argued it was your intention to do a runner.

If I had less responsibility I would probably do this and sod off to south america with as much as I could. The problem with bankruptcy involving banks and credit card companies is that ultimately the consumers who are left pick up the bill.

Edited by Lord Lucan

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The question is - wage inflation. Will wage inflation keep pace with "real" inflation or with the manipulated figures?

If wage inflation reflects real inflation, then yes, there would be a risk to having money in the bank. That is my real worry in fact.

As long as wage inflation remains below real inflation, then we are effectively getting poorer and one would assume that there will have to be some serious house price adjustment soon.

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Someone here recently said that the Housing Ladder was really the Housing Escalator - your buying power increased relatively quickly whether you moved house or not thanks to inflation. In short, you struggled for a few years and over time servicing the mortgage became easier. Then maybe you took-on a larger mortgage and the upward trend continued.

But how many recent buyers have factored possible interest rate rises and low inflation into their repayment calculations. If/when interest rates do rise, or if inflation remains low, how exactly to they plan to 'climb the property ladder'? I suspect many people are likely to find themselves trapped in their 'first time buyer' home for a lot longer than they thought.

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The effects of this are now very apparent. Where I live I have never seen anything like it - a huge compression in the market.

The difference in price between say a 2 bed terraced estate house and a 4 bed detached on the same estate can be as little as 50k.

The real madness has occurred at the bottom of the market. I had a holiday in Cornwall - St. Merryns near Padstow - in 1999 - might have been 2000.

We rented a tiny 3 bed cottage style modern terrace - usual thing - kitchen, lounge, postage stamp garden, bedrooms you could not swing a cat in etc. At the time they were 60k to 65k. I looked last night and saw one of those exact terraces on the market for £185k. How you afford this with average wages of 12k baffles me.

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  • 331 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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