Showing posts with label UK Mortgages. Show all posts
Showing posts with label UK Mortgages. Show all posts

Saturday 1 October 2011

Have UK Mortgages ever been cheaper?

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. 

Using the data from the Office of National Statistics, available from the guys over at www.InflationaryPressure.com for their charts, we see the following.
Chart presenting the index of the average UK mortgage interest payment since and the retail price index RPI since 1987 to 2011 showing that the most of the time the mortgage interest payment has grown faster than inflation. However by 2009 mortgage interest payments had dropped by over 40 per cent and have increased in line with inflation ever since.
UK Mortgage Interest Payment vs. PRI.  From: www.InflationaryPressure.com



Chart presenting the index of the average UK mortgage interest payment since and the average UK house prices RPI since 1987 to 2011 showing that there is very little correlation between them.
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.