Austerity for Dummies Part 4 – An Illustration of House Price Inflation – FYI @George_Osborne @David_Cameron #LongTermEconomicPlan

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When a single wage within a household is taken into consideration when calculating a mortgage to buy a house, the amount lent is proportional to the wage earner’s ability to pay it back.

When it is allowed to calculate a mortgage using two wages, then the amount lent can be much greater. If this applies to all households, all of them are able to borrow more money and house prices rise universally, as dictated by a market economy.

Consequently, all house buyers have more or less the same purchasing power in the market and are in more or less the same position on the housing ladder, but all houses are now more expensive and each household has more debt.

Simples!

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