Posted: Jun 14, 2017 9:33 am
zulumoose wrote:How do you figure it means selling the house?
People often buy to the maximum repayments they can afford, rather than being cautious. This means when they are under pressure for a while (having kids who grow up and becoming more expensive) they cut back on everything else they can afford and get close to the edge, so when the economy suffers a bit interest rates go up, which means they now have to pay more, and if they lose 10% income on top of that or are out of work for a while they are pretty much finished. If they see property values falling they may panic and sell to avoid values dropping below what they still owe, which is what fuels rapid price drops in the first place, a slippery slope.
It's not just a case of being cautious or not. In much of the UK you're probably going to have to borrow between five and ten times an average salary in order to buy a home, because there's literally nothing available for less than that. That'd be considered extreme overstretch in much of the world, but is possible because interest rates have been kept very low for a long time. It makes for a very delicate applecart that no government can afford to upset.