A question for the optimists

Graham_Devon

Hi Guys,

Just wanted to ask this question and start a new thread on it, so we get proper responses from the start. Hopefully thought out opinions too!

So, the premise of the question is: How do you feel that current rises / stagnation now will be supported by the populace?

We have risen back up to £160k or whatever for a property on average. On a 4x salary with a 10% deposit that will require:

- A salary of £36,000, likely with no debts, either joint or singular.
- £16,000 deposit
- £2-10k for fees (dependant on purchases obviously).

So in other words, £20k in the bank is needed really, for the slim chance of getting a 10% deposit mortgage. I recall the average amount of savinsg per person in the country being around £800.

Now, we crashed because basically, the banks & we, could no longer carry on this level of indebtness. So, if house prices did bottom in February, and it's rises and small falls from here.....how is it different this time? I.e. what's so different between now and 18 months ago, which means suddenly we can afford this debt, when we couldn't 18 months ago?

Whats changed? And I mean what's changed that will stay that way. I don't mean obvious interest rates which fluctuate.

Would be interested in your thoughts.

HAMISH_MCTAVISH

As this appears to be free of the usual baiting, I'll bite and give you a serious answer.

Graham_Devon wrote: »

Hi Guys,

Just wanted to ask this question and start a new thread on it, so we get proper responses from the start. Hopefully thought out opinions too!

So, the premise of the question is: How do you feel that current rises / stagnation now will be supported by the populace?

We have risen back up to £160k or whatever for a property on average. On a 4x salary with a 10% deposit that will require:

- A salary of £36,000, likely with no debts, either joint or singular.
- £16,000 deposit
- £2-10k for fees (dependant on purchases obviously).

So in other words, £20k in the bank is needed really, for the slim chance of getting a 10% deposit mortgage. I recall the average amount of savinsg per person in the country being around £800.

Fundamental error in your assumptions.

You are ignoring the property ladder.

A person buying a house, as opposed to a flat, should be on their second or third rung of the ladder. By the time most people need a house, they should be in their 30's, and should have built significant equity from the first rung.

That 160K house, will in all likelyhood be bought by someone with 60K or so in equity/savings after a decade or so of flat ownership.

So it's then a 100K mortgage, at the long term average of 4 times income, leaves a person on 25K comfortably able to buy, a person on 20K able to buy at a stretch, and a couple on as little as 15K each able to buy with ease.

FTB's with no equity and low savings dont typically buy the "average" house.

Now, we crashed because basically, the banks & we, could no longer carry on this level of indebtness.

No. We crashed because global credit markets froze up after the American sub prime mess exploded.

UK levels of mortgage arrears are tiny by comparison.

Average household debt in the UK is only 58K, INCLUDING all mortgage debt. Hardly a problem.

So, if house prices did bottom in February, and it's rises and small falls from here.....how is it different this time? I.e. what's so different between now and 18 months ago, which means suddenly we can afford this debt, when we couldn't 18 months ago?

Again, household debt levels in the UK are not unsustainable. That isn't the problem, and never was.

Average household debt, including all mortgage debt, is only around 1.9 times average household income.

Whats changed? And I mean what's changed that will stay that way. I don't mean obvious interest rates which fluctuate.

Would be interested in your thoughts.

Whats changed is that the doom was over-cooked by the media, and people have finally seen through it. It was never going to be that bad, the fundamentals were never that bad, the debt was never that bad, and the markets, and consumers, have woken up to this fact.

lostinrates

OK, well, my bear friends will be cross with me, but the averages, to me, look not so horrific. I think looking wat the average cost buys in certain areas of the country however, makes it look different, and not so nice.

mewbie_2

lostinrates wrote: »

OK, well, my bear friends will be cross with me, but the averages, to me, look not so horrific. I think looking wat the average cost buys in certain areas of the country however, makes it look different, and not so nice.

Oh dear, oh dear, oh dear.

Time to sit on one side of the fence or the other LIR. Trouble is you have been drawn to Cleavers light, and I cannot compete.

Apologies to Graham, for intruding on the optimist thread. He knows I am not an optimist in terms of HPI. Well I am optimistic that prices might correct at some point.

Cannon_Fodder

HAMISH_MCTAVISH wrote: »

A person buying a house, as opposed to a flat, should be on their second or third rung of the ladder. By the time most people need a house, they should be in their 30's, and should have built significant equity from the first rung.

That 160K house, will in all likelyhood be bought by someone with 60K or so in equity/savings after a decade or so of flat ownership.

About a quarter of mortgages are Interest Only, so have 0 equity.

Have a look at the Mortgages board, where posters don't even know what a repayment vehicle is...

Due to the crash, a couple of millions are thought to be in or close to negative equity, so have 0 equity.

HAMISH_MCTAVISH wrote: »

Average household debt in the UK is only 58K, INCLUDING all mortgage debt. Hardly a problem.

60% of houses have no mortgage.
25 millions houses x £58k = £1.45 trillion - seems about right for total personal debt.
40% of houses = 10 million. Divided into £1.45 trillion;

= £145,000 debt per mortgaged household.

Obviously some have credit cards/personal loans in an unmortgaged house, so its not quite right, but mortgage debt is way above unsecured, so not bad as an example of how indebted the country has become.

HAMISH_MCTAVISH wrote: »

Whats changed is that the doom was over-cooked by the media, and people have finally seen through it. It was never going to be that bad, the fundamentals were never that bad, the debt was never that bad, and the markets, and consumers, have woken up to this fact.

Even if the doom was overplayed, the last time we had a crash it took 7 years to unravel.

With the banking collapse on top of a recession and house price crash, why should it be any shorter than that time...?

Your positive spin is exactly what happened in 1990, 1991, 1992, 1993, 1994, 1995, 1996...

Generali

You can miss a lot by just looking at the averages. The Pareto Principle (in which I am a believer) says that you need to look at the margins, not the averages.

So where are the margins now for houses? Well they're pulling in opposite directions right now as you have rising unemployment which is likely to lead to higher repossessions and very low interest rates and other Govt policies including bank nationalisations which should lead to lower repossession rates.

I guess the question is which will have the bigger impact in the end? I think unemployment will as I believe the UK Government is trashing the UK's national finances. That doesn't make me right of course...!

mewbie_2

Generali wrote: »

That doesn't make me right of course...!

You're the nearest thing to right we have G.

baileysbattlebus

Graham_Devon wrote: »

Hi Guys,

Just wanted to ask this question and start a new thread on it, so we get proper responses from the start. Hopefully thought out opinions too!

So, the premise of the question is: How do you feel that current rises / stagnation now will be supported by the populace?

We have risen back up to £160k or whatever for a property on average. On a 4x salary with a 10% deposit that will require:

- A salary of £36,000, likely with no debts, either joint or singular.
- £16,000 deposit
- £2-10k for fees (dependant on purchases obviously).

So in other words, £20k in the bank is needed really, for the slim chance of getting a 10% deposit mortgage. I recall the average amount of savinsg per person in the country being around £800.

Now, we crashed because basically, the banks & we, could no longer carry on this level of indebtness. So, if house prices did bottom in February, and it's rises and small falls from here.....how is it different this time? I.e. what's so different between now and 18 months ago, which means suddenly we can afford this debt, when we couldn't 18 months ago?

Whats changed? And I mean what's changed that will stay that way. I don't mean obvious interest rates which fluctuate.

Would be interested in your thoughts.

Here are some figures for you mull around regarding first time buyers.

The average deposit by FTB's in 2008 was 21.8%, in 2007 it was 17.2%.
The average payment as a % of income in 2008 was 22.7% in 2007 it was 23.5%
http://www.communities.gov.uk/documents/housing/xls/141299.xls

or in a chart

http://www.communities.gov.uk/documents/housing/xls/chart540.xls

The figures come from the Survey of Mortgage Lenders - which I think is conducted by CML. Obviously some FTB's will be putting more down and some will be putting less down than the average figure. The average deposit for an FTB hasn't been 10% for over 10 years.


This set of figures from the same source shows the average advance and the average incomes and the average price paid for FTB's

http://www.communities.gov.uk/documents/housing/xls/141284.xls

It makes quite interesting reading tbh. It's for UK, England, Wales, Scotland Northern Ireland and regional - so it's quite comprehensive.

FTB's Q2 2009 (in England) - average price paid £160.5k, average advance £113.12k - average recorded incomes £40.4k.

To me, it looks as though some FTB's are more than managing to get large deposits together and have done for years. - A quick look at the advances vs income - it looks as if it's been between 2x and 3.5x over 16 years.

lostinrates

mewbie wrote: »

Oh dear, oh dear, oh dear.

Time to sit on one side of the fence or the other LIR. Trouble is you have been drawn to Cleavers light, and I cannot compete.

Cleaver's too young for me mewbie. You could always try I don't have to do anything: something that sadly seems to be challenging some online friendships this week

Anyway, to the point: why? I suppose by looking we are accepting we can afford to buy, but by not buying suggest we are not prepared to make a scarifice to buy at any cost. I have never felt that home ownership is desirable or appropriate for every person. (in fact, if I good do one thing it would be redraw the laws and standards of leetting/rentingproperty in this country). I think if the avergae person could spend that sort of money and get something more than a shoe box flat, its not so heinous. I think its unrealistic that workers in swaths of the country can't buy a two bed property for that. FWIW unless it were a sleeping pad in the City I would rather rent for ever than buy a one bed flat/studio.

mewbie_2

lostinrates wrote: »

Cleaver's too young for me mewbie. You could always try I don't have to do anything: something that sadly seems to be challenging some online friendships this week

I was only jesting, as always.

lostinrates wrote: »

Anyway, to the point: why? I suppose by looking we are accepting we can afford to buy, but by not buying suggest we are not prepared to make a scarifice to buy at any cost.

If you can do it, then why not? There's money, and what might or might not be. And then there's life and stuff.

HAMISH_MCTAVISH

Cannon_Fodder wrote: »

About a quarter of mortgages are Interest Only, so have 0 equity.

No, thats not right. Only those that bought in the last few years will have no equity.

If someone bought ten years ago on I/O they'll still have significant equity.

Obviously some have credit cards/personal loans in an unmortgaged house, so its not quite right,

Correct. It's nowhere near right.

Even if the doom was overplayed, the last time we had a crash it took 7 years to unravel.

It was overplayed. And the two crashes prior to that it took only a year or two to reach bottom, with only a year at bottom, before substantial rises lasting for many years.

With the banking collapse on top of a recession and house price crash, why should it be any shorter than that time...?

Because the combination of those factors time-compressed the crash.

Prices fell much faster than last time. They also fell further.

And with all the stimulus pumped in, they should also recover faster too.

Your positive spin is exactly what happened in 1990, 1991, 1992, 1993, 1994, 1995, 1996...

Well, it's a good thing this crash is playing out nothing like the last one then.....;)