Re: Mortgage
 

One thing I have noticed is that while discussions of affordability (monthly payment) focus on interest rates and mortgagge size (e.g., salary multiples as you noted) there is one side of the equation that is rarely discussed, and that is length of the mortgage. Currently, the standard is 25 years, but when the average person has a working life of 45 years or so (likely to increase with increasing retirement age), who's to say that a 40-year mortgage shouldn't become the norm? [of course, when interest rates get into the double-digits, the length of the mortgage term makes hardly any difference]

Re: Mortgage
 

When they allowed this to get out of control in Japan they invented the 50 year mortgage which you can leave to your kids like a debt. I vote against this, and for a world where banks are controlled properly and ordinary people can aspire to buy a nice home by borrowing less than 3.5 their income.

Re: Mortgage
 

But the idea it's a debt is a fallacy - you can't leave someone the debt (mortgage balance) without the asset (house). After a lifetime of paying a mortgage, the remaining debt should be small compared to the capital.

The world you describe does exist (the 3.5x income bit, I mean), but only in some parts of the UK.

Re: Mortgage
 

No, but you can leave them the debt that is several times bigger than the value of the asset or any other in its class thanks to deflation.

Re: Mortgage
 

I don't know of any period in recent history where house prices suffered deflation over the time period I was referring to (i.e., an adult lifetime - 45 to 70 years).

Re: Mortgage
 

Well, at least one company is using a sensible appproach to the situation:

http://news.bbc.co.uk/1/hi/business/8366949.stm

Re: Mortgage
 

British history? What about Japan? Just because it hasn't happened before doesn't mean it can't happen in the future. We are in an unprecedented slump, so expect unprecedented outcomes.

Re: Mortgage
 

What about Japan???

Re: Mortgage
 

Japanese housing has been losing a small percent of its value every year for over two decades - glad I didn't take out a 50 year mortgage on one of them in 1989.

Re: Mortgage
 

I guess I was looking for a little more detail than that ... how small is small? Going back to my earlier posts, if small is 1% a year, over 2 decades that would be far less than the amount of capital paid off over 20 years (in fact with a traditional mortgage, you'd have paid off almost all of the house value). So again, as per my earlier posts, you wouldn't be leaving a debt to your heirs, just a smaller amount of capital. Even with a 40- or 50-year mortgage (assuming it was started in your 20's), by the time someone popped their clogs, I just don't see that they'd be leaving a debt to their heirs, which was my earlier point (see Post #20 - I said 45-70 years not 20 years)

I understand some people's desire that UK house prices should drop through the floor and resentment that some "lucky" people have benefitted from an unprecedented 10-year rise in house values. I most definitely don't fall under the "lucky" category, but simply can't see how house prices dropping a further 20% or more will do anything except feed a sense of schadenfreude among the envious.

Most people buy a house so they have a roof over their heads, and to wish a further 20%+ drop in house prices on those who bought any time after maybe 2005 is simply wishing ill fortune on those who don't deserve it, IMO. When I bought in March 2007, it wasn't with the wish that I'd make a tidy fortune, but from a sense of concern that if I didn't get a move on, I'd be priced out of the market. Despite the fact that recent house price drops have screwed up my financial situation, I can see that they have dropped to a more reasonable and attainable level and that a sensible pattern would be a levelling out, or very gradual rise, over the next 5-10 years, so that earnings can catch up and we will be back at square one. The short, sharp shock of a further 20% drop in the immediate future would only screw up the national economy and the lives of millions of hard-earning homeowners who don't deserve it.

That's me done on discussing the economy for a while. You can get your calculator out and make obtuse references to other countries and times all you like, to support your theory that we're in for a house price disaster, but I think the current situation has a balance of fairness to all concerned (current homeowners and those trying to buy).

Re: Mortgage
 

Remember they had a large crash first, and then from that floor they lost the small amount every year and have been doing so for 20 years. Many think this is what is store for the UK. I do fit into the lucky category - very lucky, you might say - but this doesn't stop me realising that high house prices have ruined our society.

I'm not being funny or anything, dunroving, because I have enjoyed this chat, but by March 2007 it was pretty obvious that house prices in the UK were seriously artificially inflated and had to come down - and come down they did as the market tried to correct itself (as it always does). It had to lose 40% to get back to long-term trends, but then half way through this correction, governments decided to start money printing, unprecedented in Europe since Weimar; modern equivalent being Zimbabawe. The result was another artificial dam in front of market correction forces, which will happen eventually. We will pay for this policy in the worst way.

Finally, I see no reason why decent hard-working people should have to take on half-century debts just to prop up the greed of a few private banking dynasties and a few failing and corrupt governments. 3.5 multiples is more than enough. High house prices benefit no one apart from banks and governments and those who are not buying another house. If your house is 40% over-valued guess what - so is the one you are buying. All high house prices do is push up the price of everything else in society and block young people out the market. They create a tiny uber-rich class of landlords and the bulk of people are forced into being, effectively, serfs, renting life-long feudal style.

As for the current system being fair for all - I don't think two bed mid-terraces costing £250,000 that require young people to borrow six times their joint income is very fair when people of an older generation could buy a nice place for two or three times max when they were starting out. Plus that older generation didn't have £60,000 grad debts behind them like a lot of young couples have now. If we are comparing to the boomer gen then it couldn't be less fair.