Sunday, December 21, 2003

The average house now costs four-and-a-half times average income, which isn't far off the 1989 peak - of 5.2 times - that precipitated the massive crash of the early nineties.
At the same time, consumer spending has risen at an annual rate of 4% over the past two years - twice as fast as the economy as a whole.

In the second quarter of this year alone, we have withdrawn £10 billion of equity from our homes and used the money top buy cars, go on holiday or purchase designer wardrobes. "

"Many institutions are ready to lend up to six times a person's salary with, for the first couple of years, a sizeable rate discount. In addition they will allow you to pay them back over up to fifty years: so a £200,000 loan, for example, can be your's for as little as £648 a month.

The logic, apparently is that in a few years, most people will be better off and therefore, when the discounts end and the payments inevitably go up, the increase won't be too painful to bear.

The reality is that in a low inflation economy, wages don't rise quickly, and in a couple of years, most people will not be earning significantly more than they are now. But they'll be saddled with a huge increase in their outgoings. Many simply won't be able to pay, repossessions will start and the market will disintegrate. "

Michael Eboda on the BBC

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