Wednesday, Jul 19, 2006

The effect of a rate rise on affordability

Annanova: 50% of take home pay on mortgage

A 0.25% rise in interest rates to 4.75% before the end of the year, would mean a typical buyer had to spend 49.8% of their salary on interest repayments alone, said lender Cheltenham & Gloucester. That would be the highest level since 1991.\r\n

Posted by nimmmm @ 07:47 AM (558 views)
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1. George Monsoon said...

I have friends who are in this position who I do not want to see suffer, but the rate rise has to happen soon before inflation gets out of control !

There are some very well informed people who regularly contribute valid information on this site. I am not as well informed as I would like to be, but common sense is common sense after all is said and done.

Now lets hope that the BoE have a small amount of said sense.

Wednesday, July 19, 2006 08:12AM Report Comment

2. Surfgatinho said...

Ah yes but they've forgotten that if you buy a house you will be making 20K a year as its price goes up. doh!

Wednesday, July 19, 2006 09:02AM Report Comment

3. uncle tom said...

These affordability stats are very misleading.

They look only at affordability in the first year after taking out a mortgage.

At the height of the last boom, the picture was grim for the first year, but with wage inflation running at around 10%, the pain ebbed away quite quickly, and if your domestic budget was in deficit the first year, there was a good chance of balancing the books the year after.

Now that wage inflation is only 4%, a domestic deficit can take many years to get rid of, as your earnings growth gets eroded by interest payments on your mounting debt.

The situation today is far worse than it was last time round.

Wednesday, July 19, 2006 09:25AM Report Comment

4. bidin'matime said...

And this must already be impacting on the second rung of the ladder as people simply cant afford to move on. I suspect that the stats we see are all based on the still increasing demand for small places suitable for BTL, whilst mid-range properties struggle to sell. Eventually this sector must run out of steam, even if the BTLs keep going in the short term.

My guess is that it will all fall into place at the same time, as investors turn away, FTBs sit on their hands, people stop over-stretching themselves to move up the market and anyone who might have wished to move up, simply cannot, due to the continuing high level of their existing payments. It really is going to be messy.

Wednesday, July 19, 2006 02:25PM Report Comment

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