From The Daily Mail, who are dutifully trotting out Home-Owner-Ist propaganda to ensure that interest rates stay low, preferably forever:
Up to three million households are on a financial precipice – and in danger of falling over it if interest rates rise... The former Bank of England expert’s warning about the ‘zombie households’ which could be tipped into financial oblivion when interest rates rise were echoed by a series of finance experts last night...
Even at the current rock-bottom rates, almost 1.3million families are already grappling with mortgage payments that eat up more than 35 per cent of their after-tax income, the level at which the Financial Services Authority classes loans as ‘unaffordable.’
i. The average cost of repaying an average new mortgage of £150,000 is given by the article at about £17,500 over two years, i.e. £8,750 per year.
ii. If your mortgage of £150,000 is a relatively modest (by recent standards) four times your gross income, your gross annual wages are £37,500.
iii. If your gross annual wages are £37,500, your net wages are £27,800 after PAYE.
iv. The annual cost of your mortgage is £8,750 (from step i.), and £8,750 divided by £27,800 = 31%,.
v. So even a loan-to-wages multiple of four is very close to being 'unaffordable'.
Remind, what have the FSA been doing, saying and/or turning a blind eye to for the past ten years?
H/t, Flashman, comment 1 on the relevant thread at HPC.
Wednesday, 3 November 2010
More FSA Tomfoolery (just to wind up Lola)
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11 comments:
The issue is not so much the unaffordability but what to do about it.
JH, what to do about it? That's all part of my manifesto for government (perhaps I haven't explained this bit yet).
Briefly, house prices will probably crash, but bankruptcy laws will be tweaked so that people in nequity* can still sell up and move on. The banks can take half the shortfall on the chin (and 'finance' this via debt-for equity swaps, see part 3 of this series, nothing terrible will happen), and to avoid moral hazard, the borrowers will be expected to take the other half on the chin and it will be deducted from their Citizen's Income in future, so with a £100,000 shortfall, you lose £50,000 Citizen's Income, which is about seven years' worth for a couple with no kids.
And if people are in nequity but can afford the mortgage and don't want to move, what's the problem?
* For these purposes, only the original purchase mortgage of up to 90% LTV will qualify for favourable 50/50 treatment. if you did 125% mortgage or mortgage-equity withdrawal, then the excess amount over what a 90% LTV repayment purchase mortgage would have been is your problem - you borrowed it, you repay it.
Excellent stuff. The Mail is actually lobbying for serfdom, because that's effectively what this is.
Get on the treadmill aged 7 or so- welcome to the rest of your life. National curriculum, university (only not like the one your Mum & Dad went to), become sarariman, play off loan/fees, acquire mortgaged box, pay off long term out of the pittance Big Government of whatever stripe deigns to let you keep.... Jesus H. Christ; how have we ended up in such a mess?
I can't trust myself to comment......
...what I am actively doing, and which has brought me to the attention of the Stasi, erm the FSA, is to get involved in the FS world and tell all and sundry at every opportunity, with manual gestures, just what the FSA really are, and have been doing.
Any volunteers for help on the barricades?
PW. How did we end up like this?
An electorate that can't be bothered to be active/proactive and a political elite class that is never out of power.
Any volunteers for help on the barricades?
In my modest way, I'm there with you. Just responded to your comments at "The New Maths" before seeing this.
Presumably I'll have to be careful about being seen associating with you and your corrupting ilk if your activities are condemning you to pariah status :-))
FT - you have no idea. The FSA are completely out of control. Their reprieve under the coalition is a disaster. They feel that they are Master of the Universe. They are constituted under European Law and they hold themselves out to be the only consumer champion. That is based on the utterly flawed and lefty idea that all business is corrupt and all 'consumers' (which is how the EU view its citzens) are exploited.
In reality, if you do an MW and look at what really happens, it is just the opposite.
Death's too good form them.
Slightly O/T
Heard on a R5L vox pop earlier today - students shouldn't have to pay tuition fees because they won't be able to buy a house when they are older.
SF, that is not o/t at all.
One of the rules of thumb that we Land Value Taxers like to bandy about is that LVT is no big deal (provided it replaces other taxes) as "All Taxes Come Out Of Rent". i.e. the Home-Owner-Ists are quite wrong to think that income tax or even VAT don't depress rents or house prices, so worst case, if you replaced other taxes with LVT, net rental income of landlords and house prices would stay much the same.
If you see tuition fees as a tax on students, then of course the concomitant debt repayments act to depress the income they can spend on rent or housing.
"Even a loan-to-wages multiple of four is very close to being 'unaffordable'"
Indeed. The traditional maximum multiple was 3 (or 2.5 times first income plus 1 times second income), wasn't it?
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