Cynic Posted June 8, 2011 Share Posted June 8, 2011 This is a genuine question. Surely house prices are very closely linked to bank's mortgage rates and availability of mortgages? I have always thought this but nobody ever seems to agree. The type of house you can afford will be based on what the monthly repayments are. So if for example an average couple in Sheffield can afford £600 a month on their mortgage then an average house in Sheffield is going to cost whatever mortgage will be available for £600. If interest rates are lower this obviously means a much bigger mortgage. This can't then mean they can suddenly afford a massive house in a really nice area as who is then going to live in the smaller houses in average areas? The type of homes in a region are always the same, so rich people live in the nice ones, average people live in the ok ones and poorer people live in the cheaper ones. So surely the house prices are always determined by the size of mortgage people can afford the repayments for. Our household income is about average for the area and we live in an okay house. It is about what I would expect for people on our income. If house prices dropped through the floor (ie 50% reduction or more) which people are still predicting and interest rates remained the same then we could afford a house in a really nice area and lots of people like us would look at moving. Surely that would cause an imbalance? Link to comment Share on other sites More sharing options...
HeadingNorth Posted June 8, 2011 Share Posted June 8, 2011 It is certainly a factor in house prices, but it's not the only factor. Link to comment Share on other sites More sharing options...
Cynic Posted June 8, 2011 Author Share Posted June 8, 2011 It is certainly a factor in house prices, but it's not the only factor. No it isn't the only factor but surely it has a very heavy influence on house prices? Probably more so than anything else. It rarely seems to be acknowledged as having much to do with it. Link to comment Share on other sites More sharing options...
truman Posted June 8, 2011 Share Posted June 8, 2011 No it isn't the only factor but surely it has a very heavy influence on house prices? Probably more so than anything else. It rarely seems to be acknowledged as having much to do with it. Well,how is it working now? Low interest rates but house prices dropping? If you're correct shouldn't it be the other way round? Link to comment Share on other sites More sharing options...
Rupert_Baehr Posted June 8, 2011 Share Posted June 8, 2011 High interest rates might slow down house sales by reducing the number of buyers, but low prices might also reduce the number of sellers (and builders.) Link to comment Share on other sites More sharing options...
Cynic Posted June 8, 2011 Author Share Posted June 8, 2011 Well,how is it working now? Low interest rates but house prices dropping? If you're correct shouldn't it be the other way round? Interest rates for new mortgages haven't fallen at the same rate as the BOE base rate. Many people are claiming prices need to fall a further 30-50% yet. I don't see this happening. The availability of mortgages is also causing a fall in prices as it becomes harder for people to get a mortgage even if they could afford it. House prices are surely going to be mostly affected by how big a mortgage people can get and afford? That will set the price of houses in each sector of the market. A lot of people use the argument that house prices should be about 3x the average salary but because of low interest rates it doesn't work any more. Link to comment Share on other sites More sharing options...
sues_budgie Posted June 8, 2011 Share Posted June 8, 2011 House prices need to go back to sensible levels, so young people can get on the housing ladder So in effect, they need to crash. It wouldn't bother me, my mortgage is paid for. The only difference being for me, is that the next step up would not require so big a finacial step. You are never rich from house prices (unless you own more than one home) because unless you go out on the street, your £200,000 house is all tied up in your home - you can't spend the money Link to comment Share on other sites More sharing options...
Cynic Posted June 8, 2011 Author Share Posted June 8, 2011 House prices need to go back to sensible levels, so young people can get on the housing ladder What are sensible levels? I bought a house with my GF when I was at Uni, she was working in a fairly low paid job. The mortgage was about £330 a month. It wasn't that long ago and similar houses and interest rates are still available. It seems to be a bit different if you are trying to buy a house in London where a tiny house in rubbish area can be several hundred thousand. Here in Sheffield and most places up North house prices are still affordable for most people. Link to comment Share on other sites More sharing options...
chem1st Posted June 8, 2011 Share Posted June 8, 2011 If housing benefit for a single person above 25 years of age in Sheffield is £88.15 a week. (£382/month) A 1 bed flat can yield £4583.80 per year in rent.. £85000 mortgage at 2.4% (currently available from HSBC), monthly repayment = £380 Interest only the repayment would be £170. There are a hell of a lot of interest only mortgages. Tax breaks for landlords etc. You have to compete with financially feckless fookwits who the government are happy to protect at the expense of the prudent. The rentiers are being protected. The working man is fecked. When interest rates rise, the bubble goes pop! Many people are struggling already with record low interest rates. Link to comment Share on other sites More sharing options...
andikay Posted June 8, 2011 Share Posted June 8, 2011 Well,how is it working now? Low interest rates but house prices dropping? If you're correct shouldn't it be the other way round? Low interest rates and lax lending standards helped to push up houses priced and although interest rates are still low the willingness to lend to anyone as gone so prices fall. Link to comment Share on other sites More sharing options...
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