Reply to: Nationwide House Price Index May 2013

[Old Hack]

Wow! I didn't like mine and that was only 3.5 times my salary at the time! Although we had a key worker scheme loan in ours otherwise we could not have been able to afford the deposit at all.

There are some people on 30k with 300k mortagages? How?!??!?!?! Surely they cannot afford the repayments even on that? Just looked it up and 30k gives a take home of approx 1924.

Wouldn't the payments simply swallow basically all of that unless they had a huge deposit?

I have a friend with a 650k mortgage, earning 105k. His wages, alone, pay the mortgage. Interest only. Taken out in 2008. They live on the wifes earnings.

He had it valued last year at £625k. That's also after having put in a £130k deposit.

I think it's worth more today, but still...

[MyUserName]

Scary innit... how did they get that mortgage though since lenders typically don't want to go above 5-7X salary even now? Do they now work on household combined salary as standard?

I thought/think our mortgage is scary enough and we're nowhere near that bad (7X wife's salary)

Wow! I didn't like mine and that was only 3.5 times my salary at the time! Although we had a key worker scheme loan in ours otherwise we could not have been able to afford the deposit at all.

There are some people on 30k with 300k mortagages? How?!??!?!?! Surely they cannot afford the repayments even on that? Just looked it up and 30k gives a take home of approx 1924.

Wouldn't the payments simply swallow basically all of that unless they had a huge deposit?

[KentPhilip]

But when is the right time? Indeed the market is rigged, we all know that, but the fact is the govt and the banks simply can't afford a major housing crash in the UK. It would be a knockout blow for the economy. Over the last few years the banks moved people onto interest only when they started falling behind their payments rather than move to take the houses. The govt has unleashed the most stupid scheme yet, to lend people their deposits (exactly what caused the last crash?). Over the next few years I actually see house prices rising due to the effects of govt and bank manipulation. The time to buy is now

I don't think so.
You're right that declining house prices will put pressure on the banks, and that has been the motivation for money printing (QE). But money printing causes inflation (or will cause inflation) so my opinion is that they'll keep this to the minimum level required to stop house prices declining. And no more.

So I think house prices will remain static or near static for the next few years. Indeed you can predict what will happen to the price of everything else based on a scenario of static house prices.
(i.e. share prices, and goods, will rise in price).

[DimPrawn]

Yea but the government manipulation depends on massive government borrowing, and increasing it year on year. As several other governments have found this cannot go on forever.

It's can't go on forever but it can easily go on for 20+ years.

What we are seeing is govt backed mortgages for all, with "free"* money.

Fill yer boots, this ain't ever gonna happen in your lifetime again....


* free as it is paid for by robbing savers of interest and money printing and tax rises.

[CoolCat]

But when is the right time? Indeed the market is rigged, we all know that, but the fact is the govt and the banks simply can't afford a major housing crash in the UK. It would be a knockout blow for the economy. Over the last few years the banks moved people onto interest only when they started falling behind their payments rather than move to take the houses. The govt has unleashed the most stupid scheme yet, to lend people their deposits (exactly what caused the last crash?). Over the next few years I actually see house prices rising due to the effects of govt and bank manipulation. The time to buy is now

Yea but the government manipulation depends on massive government borrowing, and increasing it year on year. As several other governments have found this cannot go on forever.

[sirja]

I am going to let you into a secret. House prices are artificially inflated by government action. From quantative easing, to low interest rates, to penalising those who hold their assets in cash rather than houses, to subsidy in various ways, to being a trigger to access better schools and GP's, and so on and so forth.

The average house is worth no more than about 3 or 3.5 times the average salary, any more than that is fantasy. And of course many banks balance sheets depend on this fantasy for solvency, giving the powers that be another incentive to maintain the charade to avoid more bank meltdowns.

We seem to have learnt nothing from the US subprime crisis and the government is planning to further underwrite mortgages, which even the outgoing governor of the bank of england has slagged off as crazy.

We need a correction, a big one, it will be painful, but it will get things over and done with, and things will pick up and recover.

Its very much the wrong time to be entering the housing market unless forced into it to get your kids into a half decent school.

But when is the right time? Indeed the market is rigged, we all know that, but the fact is the govt and the banks simply can't afford a major housing crash in the UK. It would be a knockout blow for the economy. Over the last few years the banks moved people onto interest only when they started falling behind their payments rather than move to take the houses. The govt has unleashed the most stupid scheme yet, to lend people their deposits (exactly what caused the last crash?). Over the next few years I actually see house prices rising due to the effects of govt and bank manipulation. The time to buy is now

[sirja]

That was the case when the majority of people buying houses were those on salaries.
Nowadays a major part of the market is overseas investors buying with cash, and domestic buy-to-let investors buying with borrowed cash, both being major new phenomenons of the past 15 years.
Since there is no obvious end to either of the above, is it not reasonable to think that the 3.5-times-salary model for house prices is no longer accurate, short or longer term?

Very good points, I agree. Also you know have more self employed people than 20 years ago and that needs to be taken into account

[DimPrawn]

Scary innit... how did they get that mortgage though since lenders typically don't want to go above 5-7X salary even now? Do they now work on household combined salary as standard?

I thought/think our mortgage is scary enough and we're nowhere near that bad (7X wife's salary)

They got the mortgages pre-2008, mostly liar loans/northern crock...

[d000hg]

I know lots of people with £30K incomes with £300k mortgages....

Scary innit... how did they get that mortgage though since lenders typically don't want to go above 5-7X salary even now? Do they now work on household combined salary as standard?

I thought/think our mortgage is scary enough and we're nowhere near that bad (7X wife's salary)

[Ketchup]

In my opinion the government should tax foreing nationals who own british property.

[DimPrawn]

That was the case when the majority of people buying houses were those on salaries.
Nowadays a major part of the market is overseas investors buying with cash, and domestic buy-to-let investors buying with borrowed cash, both being major new phenomenons of the past 15 years.
Since there is no obvious end to either of the above, is it not reasonable to think that the 3.5-times-salary model for house prices is no longer accurate, short or longer term?

I would say the new long term average is nearer 10x earnings.

I know lots of people with £30K incomes with £300k mortgages....

[KentPhilip]

The average house is worth no more than about 3 or 3.5 times the average salary

That was the case when the majority of people buying houses were those on salaries.
Nowadays a major part of the market is overseas investors buying with cash, and domestic buy-to-let investors buying with borrowed cash, both being major new phenomenons of the past 15 years.
Since there is no obvious end to either of the above, is it not reasonable to think that the 3.5-times-salary model for house prices is no longer accurate, short or longer term?

[CoolCat]

I am going to let you into a secret. House prices are artificially inflated by government action. From quantative easing, to low interest rates, to penalising those who hold their assets in cash rather than houses, to subsidy in various ways, to being a trigger to access better schools and GP's, and so on and so forth.

The average house is worth no more than about 3 or 3.5 times the average salary, any more than that is fantasy. And of course many banks balance sheets depend on this fantasy for solvency, giving the powers that be another incentive to maintain the charade to avoid more bank meltdowns.

We seem to have learnt nothing from the US subprime crisis and the government is planning to further underwrite mortgages, which even the outgoing governor of the bank of england has slagged off as crazy.

We need a correction, a big one, it will be painful, but it will get things over and done with, and things will pick up and recover.

Its very much the wrong time to be entering the housing market unless forced into it to get your kids into a half decent school.

[Martin@AS Financial]

[QUOTE=DimPrawn;1752315] (again)

costs

haha - thank you

[DimPrawn]

(again)

costs

HTH BIDI

PS. Wouldn't it be easier for the govt just to buy everyone in the UK a house for them, and then just get the taxpayer to fund the costs rather than the half hearted "funding for BTL merchants" crap we have now?