In the high inflationary era of the 1970s and 1980s, homebuyers could rely on inflation to quickly erode the value of their debt. This meant they, rather than their bank, owned a much larger proportion of their home sooner.
However, if the price of goods and earnings continue to stay low households will find that the amount of their pay that goes towards the mortgage will stay at close to the level it was when they first bought.
Martin Ellis, HSBC, group economist said that in the 1970s you could take out a high level of debt and it might be painful in the first year but after a few years you would have a higher income so could more easily service the debt.
He said that households assume property is more affordable now because mortgage rates are low and seem cheap. But earnings are not rising as fast as they used to either, so if it is a struggle to make mortgage payments now it will continue to be in the future.
This also means property owners won't be able to scale up to a more expensive property as easily and are likely to be paying off the house for a long time.
