The edge of the crash?

**expat** · 21 November 2006, 09:37

Originally posted by DimPrawn

http://news.bbc.co.uk/1/hi/business/6084096.stm

The average UK house price has risen from £62,453 in the first quarter of 1996 to £179,425 in the third quarter of 2006 - an average increase of 10.6% a year, way ahead of income growth.

Oh dear - 5x multipliers, 40 year terms, relying on renting out rooms, interest only mortgage with no means of paying it off, grouping together to afford to buy.

Got to be near the big bang now.....

1. Multiplier is only a rule of thumb guide to affordability. The real measure of affordability is outgoings compared to income. That depends on interest rate and repayment term.

2. Length of term is also a relative rule of thumb. In practice it doesn't matter how long the term is, if lenders will offer it and buyers will take it. In Pennsylvania, lenders have long been prepared to give multi-generational mortgages to the Amish, because they never default. And the Amish have been prepared to take these loans, because they almost never sell, and the family will always pay the repayments.

3. Interest-only mortgage: better than renting. At least you don't get a landlord writing conditions like no smoking, no pets.

4. Grouping to gether to afford to buy? Couples have always done that. Flats are a bit like that anyway (you share walls and ceilings).

It is all quite supportable. It may well not last, but it could.

**wendigo100** · 21 November 2006, 09:50

Lenders are always finding new ways of lending. Sixty-year mortgages, shared mortgages, mortgages where the government help but own half your house. All things that HMG think make houses more affordable, but have the opposite effect of pushing house prices higher.

I wouldn't touch any of these with a bargepole, but then I already have a house.

**VectraMan** · 21 November 2006, 10:21

Originally posted by expat

3. Interest-only mortgage: better than renting. At least you don't get a landlord writing conditions like no smoking, no pets.

But you don't get the advantages of renting: maintenance taken care of, you can move when you want (tennancy agreement notwithstanding), and you're insulated from house price fluctuations. But more importantly you're assuming that you can get an interest only mortgage for the same price as renting, which you can't (at least I can't). The only benefit to interest only mortgages is that you gain if prices rise substantially.

I agree with DP. We have to be pretty close to the point where even these new schemes are unnaceptable to buyers and then thing will go the other way.

**shaunbhoy** · 21 November 2006, 10:28

Originally posted by VectraMan

I agree with DP. We have to be pretty close to the point where even these new schemes are unnaceptable to buyers and then thing will go the other way.

Dream on VectraMan.
Tsk tsk, another one doomed to rent for eternity.

**expat** · 21 November 2006, 11:00

Originally posted by VectraMan

But you don't get the advantages of renting: maintenance taken care of, you can move when you want (tennancy agreement notwithstanding), and you're insulated from house price fluctuations. But more importantly you're assuming that you can get an interest only mortgage for the same price as renting, which you can't (at least I can't). The only benefit to interest only mortgages is that you gain if prices rise substantially.

I agree with DP. We have to be pretty close to the point where even these new schemes are unnaceptable to buyers and then thing will go the other way.

I should have said only that it is an option, not necessarily better. If lenders and buyers can live with it, it is stable. The OP was IMHO pointing out a number of factors as being signs that the current situation is unsustainable; I am suggesting that is it sustainable, whether or not it is sensible.

**lws** · 21 November 2006, 11:25

Originally posted by VectraMan

But you don't get the advantages of renting: maintenance taken care of, you can move when you want (tennancy agreement notwithstanding), and you're insulated from house price fluctuations. But more importantly you're assuming that you can get an interest only mortgage for the same price as renting, which you can't (at least I can't). The only benefit to interest only mortgages is that you gain if prices rise substantially.

I agree with DP. We have to be pretty close to the point where even these new schemes are unnaceptable to buyers and then thing will go the other way.

Exactly, and our rent works out cheaper than getting an interest only mortgage on the same property

**DimPrawn** · 21 November 2006, 11:35

Time to put your rent up then.

**shaunbhoy** · 21 November 2006, 11:40

Originally posted by DimPrawn

Time to put your rent up then.

Too true. And watch them spiral as kind landlords pass on the rises in interest rates to their captive tenants!!

**lws** · 21 November 2006, 11:42

Originally posted by DimPrawn

Time to put your rent up then.

Right, and we'll just move. More void periods for the landlord then. I wonder what they'd prefer

The rental market is very competitve with the glut of BTL's out there. How can a newby landlord complete with someone who bought years ago or even owns the property outright? You can't just raise the rents to cover the mortgage, because people will just go elsewhere.

The edge of the crash?