I was reading an interesting news article on www.moneyobserver.com titled “Mortgages have never been cheaper”. They talked about the fall in mortgage interest rates and how this equates to mortgages never being cheaper. Although that is correct, as consumer what really maters tome in the monthly mortgages pay (which is a function of the interest rate and the total loan value). Over the last decade as mortgage interest rates came down, the total loan value increased. So I though that I would investigate the historic mortgage interest payments against Inflation (UK RPI) and wages.
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| UK Mortgage Interest Payment vs. PRI. From: www.InflationaryPressure.com |
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| UK Mortgage Interest Payment vs. Average House Prices. From: www.InflationaryPressure.com |
Presently the average mortgages interest payment has fallen below average wages, meaning that they are cheap historically. However mortgages interest payment has been very volatile over the past 24 years. Interestingly average wages index is currently around the middle of the extreme highs and lows in the mortgages interest payment index! Then you compare the mortgages interest payment against RPI you observe that it is now equal to RPI. Historically you observe that, uncannily the lows in the mortgages interest payment index equal RPI since 1987.
However when we examine the house price index against the average mortgages interest payment index you notice that they are not collated. This indicates that something else is the driving force for house price growth. As we are now finding out, house prices are driven prominently by the amount of money available to be lent out as mortgages.
Written by Inflation Monkey. Join on Google+.
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