paulr

Excuse me if i'm a bit simple but here go's. According to the papers house prices are going up all the time and have doubled in the last so many years. Now if something has doubled in price then for people to afford it one of a number of things must have happened.

1. Wages have doubled in the same time period.
2. People are spending double the proportion of their salary on their mortgage.
3.Rich people have switched from investing in shares to investing in houses,therefore creating extra demand which pushes up prices. That is money which was previously invested elsewhere,ie shares,bonds etc.

Anyone care to shed some light on the subject.

fatherpierre

4. People are trading up on the gains already made from previous house price increases.

lightning101

A combination of 2 and 4. Never have we been allowed to borrow 4:1 and 5:1 ratios on our loan to earnings bracket before this decade.

paulr

For that to happen there has to be a large pool of people buying in at the bottom. There must be new money coming from somewhere for something to increase in price.

fast bloke

5. - People at the middle/top end of the market are releasing equity to plough into kids deposits and BTL's, increasing competition for houses at the bottom end of the market and pushing the rest of the market along with it. This is causing the houses at the top end of the market to increase, which gives the owners more equity which they can release to plough into kids deposits and BTL's, etc etc ad infinitum. (except it won't be ad infinitum, cos the lenders will eventually reach a limit on multiples and people won't be able to release any more equity, at which point the market will go flat and stay that way until salaries catch up, which could take several years

fatherpierre

In the form of 1st time buyers who can just about afford the bottom end of the market.

stilover

Or, just like in the 80's and 90's the bubble will burst and house prices will fall faster than a fat kid tripping over the step at McDonalds.

What goes up, must come down. Eventually it will. Maybe not tomorrow but in the next year or so we will seee it fall, and by quite a bit. Those that are bigging it up, and saying this time round it's different are those that are maxing themselves to the limit.
Reposessing are on the rise. People going bankrupt is on the rise.

House prices can not go up for ever. If so, in ten year time your average First time buy 1 bed Flat will be £250K. You'd be borrowing 10 time+ your wage just to get a Mortgage.















Now where that pin.

paulr

Wasn't that due to people stretching themselves then interest rates went too high/unemployment and people couldn't afford the repayments?

fast bloke

The difference between the late 80's and now is that there was little competition for mortgage business and interest rates were used for political purposes rather than to maintain a stable economy (ha ha) - In 1989 you asked your bank manager for a mortgage, he gave you 3 times salary and if you missed a payment he started the ball rolling on the repossesion order. There was also no such thing as a buy to let mortgage, so when FTB confidence and affordability fell, there was no alternative to shore up the bottom end of the market. The entire housing market is now based on a more diverse platform, so pulling out one brick (like FTB's) might cause it to wobble, but it won't collapse.


By the way Stilover - Look at Dublin prices - E500k+ for first time buyer 2 up 2 down. Houses now changing hands for 8 million+ on a daily basis - The Dail introduced a 9% stamp duty bracket to try and stem the increase in prices, but so far it hasn't worked - more people than houses seems to be the cause

Luminous

iTrader: (3)

6. Also, interest rates have a large part in it.

In the past, interest rates were high, to the extent of being more than double of what they are now. If interest rates are double, then you can afford to borrow half as much. Which in turn means that you can afford to buy a house only a little more than half as much (deposit remains constant).

So as rates have fallen, people have been able to borrow much more, and therefore buy much more expensive houses, but still use the same effective percentage of their salary to do so. Prices rose to basically suck up all that extra cash.

Obvious issue is if interest rates go up a lot.

7. There are more double income families now than ever. Double income means a lot more cash to spend in mortgage payments. In the past mortgage providers (a long time ago) used to discount any second salaries. Or at best used to rate them with a much lower multiplier, now both salaries are often added together with a standard multiplier used.

So with interest rates halved, and two incomes used, that basically gives you a headroom for a four fold increase in prices.

Monkeybone

People are working harder to earn more to afford it as well, we've just bought something and if you'd have told me 5 years ago how much we'd be paying for somewhere I'd have laughed in your face.

SimonGawthorpe

Definately not.

I suspect most FTB's are!!

A lot of people who have realised how much equity is in their home have released that equity and bought second homes to rent out, possibly as a pension fund or possibly because they think they will make a quick buck as prices rise.

We now live in a country where potential FTB's are either refusing to buy or borrowing 4x or 5x their salaries to buy an overvalued property. Just because banks are offering stupid multiples doesn't mean that people can suddenly afford to make the repayments each month. The BBC (not known for letting the facts get in the way of a good story about HPI) reported the other day how the average house price in the UK has broken the £200k mark. Compare that with the average UK wage of around £22k. Something doesn't add up!

I live in the North, have a good deposit saved, earn an above average wage and will be buying with my girlfriend who also works full time. We currently rent a house at a monthly rate half that of the potential mortgage reyaments if we bought the house. It's a no brainer for me and will continue to be until there is a correction in the market. It will come, soon hopefully!!

This coupled with the MASSIVE personal debt in the UK WILL cause house prices to fall.
Si

Luminous

iTrader: (3)

prices may never fall, they may just stagnate. Its probably fair to say that house prices are on the high side and some sort of adjustment will occur. Its impossible to say that prices are going to crash.

As soon as you can buy a house and pay about the same in the interest element of the mortgage versus the rent you currently pay, that is the time to buy imo. That is of course assuming you can afford it. All fluctuations in the housing market in the last 100 years have been short, you just need the cash to live through them.

paul-s

Its funny how you change your opinion from wanting a crash to being pleased with increasing property value once you actually buy somewhere !!

Im in this boat, just buying a place now that fortunately is only the same on a repayment mortgage as it would be in rent, but I think its just the fact people can afford more.

The average house price may be 200k, but the average FTB property is obviously less, and less is affordable - ie. 150k, 2 ppl on 22k each..you do the math.

I think prices may stagnate a bit, but if there was a crash it would be short lived because everything would get snapped up !! IMHO obviously

Seamaster

what is also interesting is how most of the houses near me have been bought by Immigrants who have only been here 2-4 years . And a house here starts at £240.000. big cars the lot. the local car wash guy has bought 3 houses and drives a new RR and BMW 6 series convertable.. so much illegal money floating about. I rent (for the same reason as above, its cheaper). waiting for Pete Lewis to announce the crash and then get in !

speedking

8. Inheritance. When people die they are leaving expensive property, which value can be reinvested in the next round of inflated house prices.

Dracoro

How does that work then? e.g before 3 bed house was, say, £50k more than the 2bed flat, now the 3 bed house is £100k more than the 2 bed flat.

The higher the prices rise, the bigger the gaps between the rungs on the ladder, ultimately leading to people unable to afford to trade up. People usually trade up because they 'need' to (i.e. have kids & need space). When they can no longer trade up the market for the next rung deteriorates.

SimonGawthorpe

You are missing the whole point of averages. You can't lower the average for one denominator and leave it the same for the other.

The average FTB probably doesn't earn the average wage as they are likely to be young / inexperienced.

So if the average FTB property is £150k then the average FTB wage might only be 16-18k. Thats at least 4x multiplier.

Si

movi-star

iTrader: (1)

Another reason why prices stay high/slowly rise, is down to the number of foreigner's coming here to work, all these Poles/Romanians/Bulgarians need somewhere to live, so they rent, high demand for rental properties means Buy To Let investors are still continuing to invest in the cheaper end of the property market, thus keeping the housing market buoyant.

One of the reasons why the Goverment is so keen to allow lots of foreigners into this Country.

Brendan Hughes

Webby, please can we have a new forum - Non House Related? Thanks.

Steve Whitehorn

iTrader: (13)

The weird thing is that over in Southern Germany where I currently am. They have too many houses and too few people. Houses are passed down from generation to generation. Many people have too many houses - someone often ends up say with 4 houses and literaly dosent know what to do with them. They cant rent them for much, if at all, because there is no shortage.
(exception there is a big rental market in Munich - often for young people who will eventually inherit a house) They cant sell them for much either.
There are very few estate agents here and You quite often see huge houses with land for sale at 50k! There is plenty of money kicking around in this part of the world - It is a real eye openener as you see the UK population working desperately hard to afford mortgages or that next buy to let. When here - Mortgage? Whats a Mortgage? I am going to spend money on living life not on a pile of bricks-as my family have 3 houses already!
The difference is very interesting. The Southern Germans find it hard to get their heads round what is happening in the UK and visa versa.

f1_fan

iTrader: (9)

But the crash is just around the corner don't you know? Must be true as I read it on here back in 2000, 2001, 2002, 2003....

Jay m A

iTrader: (2)

FTB is misleading. there are a lot of divorcees / split professionals buying 'chain starter' properties, with a decent income and a huge deposit from the sale of their equity laden previous home.

Flaps

iTrader: (1)

2.
Our mortage has just gone up to £718

WR1 Ant

mines just gone up to £1159.

fast bloke

The scary thing is that I have been arranging mortgages this size for FTB's on 20k a year. £1600.00 take home, £1100.00 on mortgage and insurance, leaving 15 quid a day to live on. I think if that was me I would rent

Jay m A

iTrader: (2)

People never learn - don't tell me that was a discount variable too

Leslie

As someone said, the number of people in extreme debt is enormous. People have become used to living on credit now and that makes the economy look artificially strong. While interest rates stay comparatively low this will probably get worse.

The country is also very much in debt to the IMF, Flash has been borrowing as hard as he can go such that he has already been warned by the IMF over it.

I shudder to think what will happen when the bubble does burst as I think it will in time.

Meantime, look forward to the vast increase in stealth taxes on their way.

Les

Dracoro

£1600 X 12 = £19,200, so £800 p/a in tax.

I rather think someone on £20k a year takes home less than £1300. So that's £50 a week to pay for food, council tax, electricity, gas, transport and so on, that's close to £100 a week easily so AT LEAST they are down £200 a month, £2,400 a year, prolly more like £5k a year if they have any sort of car, holidays or social life.