The Affordability scam explained

CluelessJock

chucky wrote:

i was trying to ask to compare what an average mortgage payment would have been in the 1980s or early 1990s to now.

I see, well all I know is that my first property was less than twice my salary, which wasn't a high salary.

Was it difficult to meet the bills, absolutely! The main difference, which is a whole new subject, was that, unlike most people today, I was prepared to sacrifce other things, car was sold to get deposit, no hols. etc. Today the attitude is somewhat different!

chucky

CluelessJock wrote: »

I see, well all I know is that my first property was less than twice my salary, which wasn't a high salary.

Was it difficult to meet the bills, absolutely! The main difference, which is a whole new subject, was that, unlike most people today, I was prepared to sacrifce other things, car was sold to get deposit, no hols. etc. Today the attitude is somewhat different!

this is what i am saying

1991 Average House Price = £53,635, 14% Mortgage rate - it was actually a couple of % higher
Interest Repayment was £626 a month on 1991 average salary (however you'd like to calculate it - median, mode, mean)

2009 Average House Price = £154,066 , 4.64% Average SVR
Interest Repayment is £595.72 a month on today's average salary (however you'd like to calculate it - median, mode, mean)
http://www.moneyextra.com/dictionary/interest-rate-history-003455.html

i appreciate that this doesn't include capital repayment - mortgage affordability is better now than the early 1980s and 1990s, buying a house is a different story...

mewbie_2

chucky wrote: »

this is what i am saying

1991 Average House Price = £53,635, 14% Mortgage rate - it was actually a couple of % higher
Interest Repayment was £626 a month on 1991 average salary (however you'd like to calculate it - median, mode, mean)

2009 Average House Price = £154,066 , 4.64% Average SVR
Interest Repayment is £595.72 a month on today's average salary (however you'd like to calculate it - median, mode, mean)
http://www.moneyextra.com/dictionary/interest-rate-history-003455.html

i appreciate that this doesn't include capital repayment - mortgage affordability is better now than the early 1980s and 1990s, buying a house is a different story...

Are you comparing 14% mortgages with 4.64%? Er, can you not see a flaw in that comparison?

chucky

mewbie wrote: »

Are you comparing 14% mortgages with 4.64%? Er, can you not see a flaw in that comparison?

why?? tell me where the flaw is?

we can use the 30 year historical average mortgage rate and will get a similar scenario.
i think that you may have missed the point about affordability.

nearlynew

kriss_boy wrote: »

It is strange hearing guys at work, our roadworkers etc saying how theyve got a matter of years left to pay and thats them. Guys some of which are very early 40s.

Im 26 and I cant see how Ill have mine paid off that young, and I earn more than them.

This just about sums up the absurdity of the whole HPI scam.

Something has gone seriously wrong when your housing costs and general standard of living is determined by when you were born.

It cannot be right that young people today, doing equivalent jobs as their elders and while nominally earning more cannot afford equivalent housing.



Inflation is theft.

Graham_Devon

Only the other day when talking about mortgage rates I was told that they never hit 14% so why would they this time round.

Sure it was something to do with BTL.

Infact, looking at historial mortgage rates, it was 13.75% for one month only, in April 1991. It then reduced to 12.95% then down to 11.5% in a matter of 3 months.

The highest mortgage rates seemed to be in 1990, 15.4% 1st March 1990!!

The trouble I have with your (correct) examples above, is the house prices. We have the high end one month only 14% mortgage rate applied to the 1991 price. We have the lowest SVR rate applied to the 2009 rate.

Neither are good examples really, as they are the ceiling and floor levels, and both will only last a couple of years, and in the middle you are left with something a bit more reliable.

But basically theres a saving of just 30 quid at todays rate. But a mortgage 3x the price.

I honestly know which I would prefer, and that would be the 1991 house.....in hindsight (at the time, I would have been crapping it wondering when these rates would end!!)

Really, we need a more average rate to compare things on, not the extremities of both examples, both of which can only last so long, and not very long in terms of the life of a mortgage.

I'd have lost the £30 saving in the next couple of months when rates when from 13.75% down to 11.5%. So for your example to ring true, you have to compare it to only 2-3 single months in the last 20 years.

CluelessJock

Exactly chucky, that is precisely why I found it difficult.

As you say the interest rate makes more difference than the property price when comparing the cost of servicing the mortgage.

I don't know what the average 1st time buyers salary would be in 1991 (ignoring the differences in 1st time buyers age) compared to now, but not convinced it will have tripled, so the deposit may be more difficult to save. Couple this with peoples perception that they need new cars, holidays, designer clothes etc and the deposit has not only to come from a wage that is a lower fraction of the property price, but also one that yields less disposable income.

carolt

chucky wrote: »

this is what i am saying

1991 Average House Price = £53,635, 14% Mortgage rate - it was actually a couple of % higher
Interest Repayment was £626 a month on 1991 average salary (however you'd like to calculate it - median, mode, mean)

2009 Average House Price = £154,066 , 4.64% Average SVR
Interest Repayment is £595.72 a month on today's average salary (however you'd like to calculate it - median, mode, mean)
http://www.moneyextra.com/dictionary/interest-rate-history-003455.html

i appreciate that this doesn't include capital repayment - mortgage affordability is better now than the early 1980s and 1990s, buying a house is a different story...

But:

(a) You're not including MIRAS.
(b) You're not including capital repayment.
(c) You're looking at 1 split second rate, when a mortgage is paid over 25 years or more. Mortgages stayed at 14% (which it wasn't anyway, as MIRAS was taken off) for no more than a couple of months. Today's rates will last for no more than a year or 2 at most of 25. And only apply to those on the 'right' deal - no good if you're on a higher fix, if you're LTV is too high, your SVR too high, etc etc. Trying to base 25 year affordability on 1 month's rate is silly.
(d) I can't be bothered to work out your figures, but I'd love to see the source, as you've quoted them before and I'm 99% sure they're made up. Sorry.

HAMISH_MCTAVISH

mewbie wrote: »

Are you comparing 14% mortgages with 4.64%? Er, can you not see a flaw in that comparison?

Why is it a flawed comparison?

The whole argument through several threads now is that affordability of housing is about more than just the initial price paid.

If in 1990 it took 70% of someones disposable income to buy a house, and in 2007 it only took 45%, then it's obvious to anyone with half a brain that it was more affordable in 2007 than in 1990 in relative terms.

Forget about prices for a moment and answer one simple question.

Would you rather pay 70% of your disposable income for a house or 45%?

chucky

Graham_Devon wrote: »

Only the other day when talking about mortgage rates I was told that they never hit 14% so why would they this time round.

Sure it was something to do with BTL.

Infact, looking at historial mortgage rates, it was 13.75% for one month only, in April 1991. It then reduced to 12.95% then down to 11.5% in a matter of 3 months.

The highest mortgage rates seemed to be in 1990, 15.4% 1st March 1990!!

The trouble I have with your (correct) examples above, is the house prices. We have the high end one month only 14% mortgage rate applied to the 1991 price. We have the lowest SVR rate applied to the 2009 rate.

Neither are good examples really, as they are the ceiling and floor levels, and both will only last a couple of years, and in the middle you are left with something a bit more reliable.

But basically theres a saving of just 30 quid at todays rate. But a mortgage 3x the price.

I honestly know which I would prefer, and that would be the 1991 house.....in hindsight (at the time, I would have been crapping it wondering when these rates would end!!)

Really, we need a more average rate to compare things on, not the extremities of both examples, both of which can only last so long, and not very long in terms of the life of a mortgage.

rates were at 15% for 7 months and were over 14% for nearly 18 months
1 Apr 91 - 13.75
1 Nov 90 - 14.50
1 Mar 90 - 15.40
1 Nov 89 - 14.50

you're right they are extreme scenarios here's the same calculations with different rates
£154,066 5% £641.94 a month
£154,066 6% £770.33 a month
£154,066 7% £898.72 a month
£154,066 8% £1,027.11 a month

my main point here was the affordability thing - where i think a dual income household can afford a mortgage and i guess a house but a single person will struggle a lot due to the repayment factor. here is where the house price landscape has changed...