“I don’t want to look at a graph, mate. I ain’t got time for a bloody graph… This is the kind of stuff that people like you use to confuse people like us.”
So of course helpful Twitter users sent him a few more.
Graphs are meant to simplify information – to present it in a visual way to make it easier to spot trends and patterns. Unfortunately whilst they may bamboozle the “creatively orientated” talents of Russell Brand, for those in the financial world they are the bread and butter of the working day. Or more accurately, charts are the processed cheese on top of the bread – because every graph tells only one side of the story, and is produced with someone with a point to make or an axe to grind. Not unlike a source in history, once the author’s bias is known and accounted for, it can be a useful piece of information.
Unconventional: Yes. Complex: not necessarily. There is only one line, but with a combination of colours and the fact that it loops back on itself – it becomes a little daunting.
Because it’s about the mortgage market, let’s try and unpack it a little.
Firstly, look at the axes (the lines at the left and the bottom). Now we know this chart is trying to communicate something about the relationship between mortgage rates and loan to income ratios. Secondly, look at the key (the coloured arrows labelled with decades) – this give us a clue that we will be looking at how the relationship changes over time. Thirdly look at the overall shape. The coloured line (the path of the data point) meanders from left to right on a broadly downwards slope, from the arrows and colours we can see this is the trend over time. In other words, mortages have a lower interest rate now than they did, and also the loan to income ratio is increasing.
Now it’s interesting to notice some of the more unusual shapes – like the interest rate drops of the early nineties (corresponding with house price falls) that is the vertical drop of the segments of blue line and the horizontal move to the right of the yellow line – when house prices rose compared to income through the early 2000’s.
Lastly it’s also worth trying to get your head around the dotted lines: curved bands that attempt to overlay another piece of information on to each year. These are the mortgage payments as a percentage of average income. Mathematical aside: these bands can be added because there is an indirect relationship between income ratio (which is based on a salary and a total mortgage amount), and how much that mortgage costs to service (the interest rate). In other words, it’s possible to reverse engineer the percentage of income figure from the same data, and they end up fitting nicely into these curved shapes.
The amount of income spent on a mortgage is often quoted as a measure of affordability. So the movement of our little coloured dot in between these bands does tell a human story about how expensive a mortgage feels at the end of each month.
So what’s this chart trying to convey? The author is a residential property analyst with Savills, but appears pretty neutral in his own financial opinions. We could conclude that there isn’t much use in steering by looking in the rear view mirror – the chart is so muddled it’s not much of a predictor of the future. Or we could point out that in 2013 average mortgage payments were pretty affordable (19% of income) relative to the past 35 years. Or we could be more cautious and show how the affordability bands are much closer together once the Loan to Income ratios get higher – in 2014 a percentage increase in mortgage rates has a much bigger hit on the monthly bottom line than it used to 25 years ago.
About the only thing we can say with certainty is that there are many forces at work here, and this chart cannot include every potentially relevant social, political and economic factor. It is also based on average historical data, which is usually completely irrelevant to individual, personal circumstances and future aspirations.
So no matter how elegant or clever this chart is, maybe Russell Brand has a point. Don’t do graphs. Do your own homework. Or even better let us help with you it!