Buying a house right now. How safe?

Heh, sounds like the "new economy paradigms" we had in the late 90s, brought about by the explosion of the Internet (so we were told). And we all know what happened there ;)

Sorry - what a jarring typo ^

wrote

Perhaps because of the very reasons you've just mentioned? :-

Lack of supply of houses for sale => supply whetever demand there is continues to prop-up the prices .... ?

wrote

What, something like 6 x 4% = 24% of earnings?

What I've always found difficult to understand, is that if (eg) someone earning 18Kpa can feed & clothe themselves on (say) 50% of their salary - then why can't someone who earns 36Kpa feed & clothe themselves on the same

This means that, if the 18Kpa earner can afford to pay a mortgage of 3x salary, then the 36Kpa earner could afford to pay a mortgage of a much higher multiple than just 3x ...

maybe I'm getting my posts mixed here, but I believe the 6x multiplier was made by someone claiming a 30 year involvement in the market.........rates were nothing like 4% in 1974.

Around the mid to late Seventies. I can't remember the interest rates. Suffice to say that I couldn't afford carpets for several years.

No. A nice bungalow out in the country. It doesn't appear to be an anamoly in these parts (SE of London), either. Similar properties have similar rents, and I know what they'd sell for.

Damn right they weren't. ISTR those were the days when you could get

So loan interest would have been around 13%, and costing you nearly

Except you got tax relief on the interest component, at (iirc) your highest rate.

"Ronald Raygun" wrote

Yeh, and the young upstarts today whinge at the high house prices which mean they "can't afford to buy" - 'cos they'd need to pay ** 30-40% ** of salary ...

It's a problem with the banks lack of intelligence on lending criteria. Common sense suggests it should be on ability to pay (plus a safety margin on variable rates) which takes account of prevailing interest rates, whereas they currently judge it on the spurious price to incomes ratio.

Daytona

Mass market mortgages started with our parents' generation and so housing in the UK hasn't yet seen a complete credit cycle, hence my argument that we're seeing a popular reaction to something new, as with the previous four major cycles.

Of course there's the anecdote I've been unable to source (still reckon it was either Beckman or Rees-Mogg) that just after the turn of the 20th century, the Liberal government pioneered mortgages for artisans and well-paid workers to enable them to buy houses. Unfortunately there was a deflation and both land and house prices fell by 90%, leading to considerable unpopularity for the scheme's results.

Not really mass market mortgages though.

FoFP

That this is new?

That's one scandal certainly. I see that as a symptom rather than the disease.

Were prices perhaps rising at that point too?

FoFP

I sem to recall something about how Price/Earnings ratios didn't apply to NASDAQ stocks and how the Eyeball Index (measuring web hits) was more appropriate for potential investors.

Heh. On Wall Street in 1929 nobody asked what your earnings were when you took 90% margin on stocks. Stock profits *were* your earnings.

Of course that was in a New Era. Recessions had been abolished by the application of scientific principles.

FoFP

I think you're knocking on an open door :-)

What people thought in 1932 with the Dow down 89% and deflation at 10% was for the government to help then too. It sucessfully managed to turn a four year recession into a 14 year depression. The very last thing we need is government "help".

If the government would get the hell out of housing markets and let builders build houses where people wanted to have houses, things would fix themselves fairly quickly. What we have is effectively a Soviet Housing Market transplanted to the UK, complete with Five Year Plans from Prescott.

FoFP

All very well unless you need that house to live in!

Which does raise an interesting point. Banks, knowing what they do from the last property cycle, will be keen to offload the properties of those in negative quity who just dump the keys, as quickly as humanly possible. Ditto BtL landlords who can't cover rent shortfals with price rises. Since the end of the scenario indicates a No Credit situation, and assuming that there won't initially be numbers of cash buyers to match the properties for sale, what will happen to those properties?

Given that there'll be a number of ex owners bunking with relatives and friends, it could be that they'll rent to whichever of them still have an income top pay it, at whatever level they can pay. It's better than having the property empty and prone to vandalism as happened to some last time around.

I even wonder if government interference won't take that particular form: forcing landlords with empty property offer peppercorn rents to those evicted through negative equity and mortgage default. The political argument that it benefits both sides could easily be made. Effectively the government would have the landlords subsidising what had become de facto social housing, thus reducing the strain on the Treasury during a bad recession and they could make the argument that what the landlords were getting, was better than the nothing they'd get for an empty property.

Somewhat similar deals were made at the end of the Tulip and South Seas Bubbles once Courts found it impossible to enforce the debts of those who'd bought on credit in order to sell higher and pay off the loan at a profit. Political deals overruled court cases and effectively settled a payment schedule which didn't cover anything like full payment, but was better than nothing.

I suppose there'd be real irony in later converting this to Right to Buy, at prevailing prices.

FoFP

????

The point in question was the number of generations between my father and now, you have absolutely none of the necessary information to calculate this using 'real' generations, only the finger in the air calculation of 20 years per generation.

exactly.

tim