9 ms·

Except the higher interest rates actually makes the mortgage much less affordable. Monthly repayments over 25y: £300k mortgage at 2% = £1271 £250k mor

Except the higher interest rates actually makes the mortgage much less affordable. Monthly repayments over 25y: £300k mortgage at 2% = £1271 £250k mortgage at 5% = £1461 This loan would have to drop to £218k before the monthly payments became the same. That's a 27% drop before affordability even reaches the same level as before.

qudat 4y ago
The notion that lower interests rates make it more affordable to own homes is a pernicious way to subsidize a specific class a people: those who can afford housing.
- JenrHywy 4y ago
  When rates are lower, more people can "afford" to buy a house because the repayments are lower. Lower rates also (all thing being equal) means lower rents.
  - lotsofpulp 4y ago
    What does lower interest rates have to do with lower rents? Taxpayer subsidized interest rates simply transfer future taxpayer money to existing land owners, similar to how taxpayer subsidized educations loans transfer money from future taxpayers to educational institutions and their staff, via excessive tuition prices. If the government wanted to help someone buy a house, it could do one or more of the following: 1) build more houses 2) pay someone to build more houses 3) give people cash so that they can buy houses. Houses can be abodes of any kind, including apartment, condo, townhouse, detached house, etc.
    - JenrHywy 4y ago
      > What does lower interest rates have to do with lower rents? Interest rates affect repayments. Higher repayments mean that the rent an owner is willing to accept will be higher (or, they won't enter the market). Your whole model seems a little strange to me. Keeping rates low/stable is not a housing subsidy; it's about keeping the entire economy growing at a sustainable rate.
      - lotsofpulp 4y ago
        Keeping rates artificially low/stable is a subsidy, to keep asset prices growing at a rate that matches people’s expectations so there is not any political unrest when people’s 401k and pension and house price does not end up where they think it should. My model is about helping people acquire a home they can live in. Which means having a home available for them to live in, and giving them cash to obtain it. Using taxpayer funded loans is wholly unnecessary to accomplish that, and is a wealth transfer from non land owners to land owners in the long run.
  - qudat 4y ago
    Why not simply provide a subsidy directly to that subgroup that can now afford houses because of lower interest rates instead of providing massive benefits to those who can already afford? Not to mention second homes, etc. We are subsidizing the well-off to allow some subgroup to afford owning homes while excluding the poorest from getting any benefits.
    - JenrHywy 4y ago
      Interest rate control is not a subsidy.
- frankreyes 4y ago
  And lower food prices is a way to subsidize those who can afford food?
  - mxkopy 4y ago
    Lower interest rates are categorically not lower prices. A rich person can make low interest rates go exponentially further than a poor one; lending and borrowing is the game of the wealthy. Whenever I hear 'lower interest rates' this and 'lower interest rates' that my scam radar goes off. It's a dogwhistle for "I want to take out $200K loans again for free." People need higher interest rates, but more than that they need them over a sustained period of time, not reactive hikes that just screw everyone over. ECON 101: you lower them in bad times, not when selling pictures on your phone is one of the most profitable endeavors (i.e. the market is stupid hot). A cushion is useless if it's deflated before the fall.
    - anonymouskimmer 4y ago
      Right. Historic average interest rates in the US are around 4%, with around 6% being about the average over the past 40 years or so. We can do fine with non-zero rates. https://advisor.visualcapitalist.com/us-interest-rates/ https://advisor.visualcapitalist.com/us-interest-rates/
opportune 4y ago
In the US interest payments are tax deductible (it’s a bit complicated because there are cliffs and limits involved) which lessens this. For me personally I max out the SALT deduction which is barely less than the standard deduction, so most interest payments would be “discounted” by my highest marginal tax rate, which is a lot. Basically you end up with a 30-50% discount on mortgage interest in some cases
- lotsofpulp 4y ago
  The mortgage interest tax deduction requires itemizing (foregoing the standard deduction), and only 10% of US tax filers itemize.
  - opportune 4y ago
    Yeah, and those are probably all homeowners, and will be skewed more towards those with higher incomes and larger home prices (ie those who are buying in the current market). So basically people on this website who are looking to purchase a home are much more likely to be itemizers/would itemize once they buy a house.

qudat 4y ago

The notion that lower interests rates make it more affordable to own homes is a pernicious way to subsidize a specific class a people: those who can afford housing.

JenrHywy 4y ago
When rates are lower, more people can "afford" to buy a house because the repayments are lower. Lower rates also (all thing being equal) means lower rents.
- lotsofpulp 4y ago
  What does lower interest rates have to do with lower rents? Taxpayer subsidized interest rates simply transfer future taxpayer money to existing land owners, similar to how taxpayer subsidized educations loans transfer money from future taxpayers to educational institutions and their staff, via excessive tuition prices. If the government wanted to help someone buy a house, it could do one or more of the following: 1) build more houses 2) pay someone to build more houses 3) give people cash so that they can buy houses. Houses can be abodes of any kind, including apartment, condo, townhouse, detached house, etc.
  - JenrHywy 4y ago
    > What does lower interest rates have to do with lower rents? Interest rates affect repayments. Higher repayments mean that the rent an owner is willing to accept will be higher (or, they won't enter the market). Your whole model seems a little strange to me. Keeping rates low/stable is not a housing subsidy; it's about keeping the entire economy growing at a sustainable rate.
    - lotsofpulp 4y ago
      Keeping rates artificially low/stable is a subsidy, to keep asset prices growing at a rate that matches people’s expectations so there is not any political unrest when people’s 401k and pension and house price does not end up where they think it should. My model is about helping people acquire a home they can live in. Which means having a home available for them to live in, and giving them cash to obtain it. Using taxpayer funded loans is wholly unnecessary to accomplish that, and is a wealth transfer from non land owners to land owners in the long run.
- qudat 4y ago
  Why not simply provide a subsidy directly to that subgroup that can now afford houses because of lower interest rates instead of providing massive benefits to those who can already afford? Not to mention second homes, etc. We are subsidizing the well-off to allow some subgroup to afford owning homes while excluding the poorest from getting any benefits.
  - JenrHywy 4y ago
    Interest rate control is not a subsidy.
frankreyes 4y ago
And lower food prices is a way to subsidize those who can afford food?
- mxkopy 4y ago
  Lower interest rates are categorically not lower prices. A rich person can make low interest rates go exponentially further than a poor one; lending and borrowing is the game of the wealthy. Whenever I hear 'lower interest rates' this and 'lower interest rates' that my scam radar goes off. It's a dogwhistle for "I want to take out $200K loans again for free." People need higher interest rates, but more than that they need them over a sustained period of time, not reactive hikes that just screw everyone over. ECON 101: you lower them in bad times, not when selling pictures on your phone is one of the most profitable endeavors (i.e. the market is stupid hot). A cushion is useless if it's deflated before the fall.
  - anonymouskimmer 4y ago
    Right. Historic average interest rates in the US are around 4%, with around 6% being about the average over the past 40 years or so. We can do fine with non-zero rates. https://advisor.visualcapitalist.com/us-interest-rates/ https://advisor.visualcapitalist.com/us-interest-rates/

opportune 4y ago

In the US interest payments are tax deductible (it’s a bit complicated because there are cliffs and limits involved) which lessens this. For me personally I max out the SALT deduction which is barely less than the standard deduction, so most interest payments would be “discounted” by my highest marginal tax rate, which is a lot. Basically you end up with a 30-50% discount on mortgage interest in some cases

lotsofpulp 4y ago
The mortgage interest tax deduction requires itemizing (foregoing the standard deduction), and only 10% of US tax filers itemize.
- opportune 4y ago
  Yeah, and those are probably all homeowners, and will be skewed more towards those with higher incomes and larger home prices (ie those who are buying in the current market). So basically people on this website who are looking to purchase a home are much more likely to be itemizers/would itemize once they buy a house.