Why now so hard to get that 1st rung on the propery ladder compared to years gone by?

Jorgan_2

Personally I don't think its ever been 'easy' for FTB to get on the ladder. Peoples expectations have certainly changed, more people seem to want or expect everything now.

Interest rated used to be higher for our parents, 7-9% seemed to be the norm. Also mortgage money wasn't so easy to come by. My boss tells me stories of having to wine & dine Building Socitiey managers to try & get them to give their allocation of monies to be lent that month to his buyers. Once their allocation had run out, that was it, no more lending for the month. Compare that to today were lenders are offering 125% mortgages & over 4 times income in some cases.

lisyloo

People used to be able to realistically afford properties with their salaries even at 20

If depends what period you are talking about.
This is certainly not true of the 1900's, 1920's or 1940's.
If you are picking one particularly good period to compare with then that isn't a fair comparison, that's being very selective with your data to prove your point.
You are certainly looking at very high prices now if you look at that graph I posted yesterday.

http://www.housepricecrash.co.uk/

Of course it isn't going to be easy buying at one of the "peaks" (although we don't yet know whether this one will be a peak).
It's obviously much better if you buy at one of the troughs.

the cost of living has increased dramatically compared with how much people are earning

Recently living costs have increased and inflation does not reflect that.
To state the obvious our planet is running out of fossil fuels and countries like India and China with HUGE populations are becoming developed and wanting our lifestyle.
Whilst we have a reliance on fossil fuels, I think our living costs are almost bound to increase.
For a while we might be able to offset that will cheap product like DVD players from china, but at the moment, virtually anything you consume is based on oil, so I would expect it to continue getting much worse.

So I'd almost go as far as to say that getting on the ladder now is a bit crazy.

F_T_Buyer

Here's an extract from a post on HPC:

I am writing to you to tell you about something that deeply concerns me. The issue is that of housing and house prices.

I’m 30 years old and live in XXXX with my partner who is 26. My partner and I would like to buy a house and start a family but the cost of housing is prohibitive. After 7 years of saving hard we are still no nearer to buying a first home.

With the costs of buying and selling property now very high, largely due to the cost of stamp duty there is no point buying a 1-bed flat if I want to have a family, we require at least a 2-bed property or preferably a 3-bed property if we are to have 2 children as we would like within the next 5 years. In the current climate of high house prices these properties are simply fantasy.

It appears to me that the yearly increases in house prices over the last 10 years, which should have been unsustainable have opened up a massive divide between the haves and the have-nots. By that I mean those that bought property before the recent, huge price increases and those that didn’t.

My parents generation and older generations (the over 50’s), having paid off their mortgages thanks in part to higher inflation in the past are now reported to own four-fifths of the nations’ wealth of which a large proportion is property. At the same age I am now, my parents bought a 5-bed family home in Devon in 1981 and had four children that grew up in that home. My mother didn’t work and my dad has always earned below average wages. A 1-bed flat in the same town today would be four times my earnings and I earn considerably above average for that area. Things are very different now.

How can we be living in a civilized society where those that don’t have dependent families living at home own all the family housing and those that do have families or would like families can’t afford the family sized houses? In fact, those that would like to have families are having to put the decision of having children off until later in life and will, undoubtedly have fewer children than they might like due to housing restrictions and the problems associated with fertility etc that are a cause of waiting too long. You can’t bring up children in a 1-bed flat.

Even when younger people are buying houses, the repayment costs of the super-sized mortgages that they are taking on will be taking up most of their income. This income could otherwise be spent on bringing up children, saving into a pension and benefiting the economy through spending. If a couple have to work just to pay a mortgage and living costs how are they ever going to afford to have children? Are children not beneficial to our society, will they not be providing the taxes in the future to support the larger proportion of elderly people?

So why do we have this current situation of unaffordable house prices in the UK? To summarise, these are the reasons that I think we have unaffordable housing in the UK at present;

- Low inflation (and hence low interest rates)
- House building/planning restrictions and immigration
- Relaxing of mortgage lending criteria
- Buy-to-let investment
- Growth in 2nd home ownership
- Home owning psychology and the housing ladder

Low inflation (but high house price inflation)

The growth in house prices seems to be largely due to the cheap credit that has been available due to low inflation and hence low interest rates which has been a global trend. However, the official CPI figure has certainly become questionable. A new inflation index by the Independent newspaper produces a figure double the current official CPI figure and most services costs are increasing at far higher rates of inflation.

Low inflation keeps wages down and yet house price inflation has far exceeded the official CPI figures and therefore wages haven’t kept pace with the exorbitant rise in house prices, effectively first time buyers have been left behind.

How have inflation figures been kept so low with such large increases in house prices, energy prices, service costs and money supply. Is the official CPI figure a true reflection of the increased costs of living in the UK? Should more have been done to control the rampant house price inflation over the last 10 years?

House building restrictions and immigration

There seems to be a problem with the planning regulations in this country. The current government recklessly pursues a ‘no limits’ immigration policy and resulting net population increase but they don’t appear to be providing the housing needs to match this population increase. Under a Labour government the number of flats being built is now approaching 50% of all new builds, perhaps a result of the planning restrictions as the proportion of building in the remaining spaces in towns and cities has increased.

People in built up areas are expected to lose all of their open spaces, many of which improve the quality of living in built up areas immeasurably and yet on the edges of towns the building stops. If governments want increasing populations they should meet the housing demands and flats are not the answer for those of us wanting to have children. Over 80% of the UK population live in urban environments, why should the majority be forced to live in smaller and smaller spaces to protect the rights of the minority not to have any new building near them?

Due to the planning restrictions in this country the average size of a new build in the UK is only 76 sq metres, the smallest in Europe, in Germany with a similar population density the average is 109 sq metres.

Migrationwatch have pointed out that UK housing demand projections have been based on net UK immigration at around 65,000 per year. They claim that from 1996 to 2004 the actual level averaged 140,000.

Why is the current government not meeting the housing needs of the growing UK population? Why are so many new build properties now flats?

Relaxing of mortgage lending criteria

Banks have been gradually relaxing their lending rules. Now you can get self-certified mortgages where you can basically make up a figure for your salary and banks are providing mortgage loans on increased multiples of salary. The previous mortgage lending rules like 3 x salary seemed sensible because interest rates are variable and the rules prevent people from borrowing too much.

It seems to me that people generally don’t have much concept of even the basics of economics, interest rates, inflation etc. I know many examples of people really stretching themselves to buy property, taking on mortgages that they won’t be able to afford if interest rates go up.

Why is lending by banks not more closely regulated, perhaps by the FSA?

Buy-to-let investment

One recent trend has been the large growth in the buy-to-let mortgage market. People have moved into this type of ‘investment’, in many cases, to provide some kind of pension. The yields on these ‘investments’ don’t even stack up anymore, many buy-to-let investors reportedly have to subsidise their flats and yet people keep purchasing buy-to-let properties with the hope of future capital gains.

How can my generation, the first time buyer compete with those people that get tax breaks on this kind of investment and can leverage equity from their existing homes to provide the deposits to make the purchase when we have to save to make the deposit?

Growth in 2nd home ownership

I am originally from Devon, my parents family home was bought as a 2nd home, empty for most of the year. My parents current home in Cornwall is about to be bought as a 2nd home. The house opposite my grandmother, again in Devon is a 2nd home and is empty for most of the year. In each case the homes are owned by a generation (over 50) that already have a primary home. The prices of housing in these rural areas is now so prohibitive, especially in relation to the wages in the area that my generation has no choice but to migrate to the towns and cities to find better paid work.

How can we call this a civilized society when those that would like to have a family can’t afford family housing but those that have no dependent family are able to own, in some cases, more than one family-sized home and due to the lack of building reduce the supply of housing and push prices up? Should housing be treated like other assets with so few controls when high house prices can have such a detrimental effect on the lives of so many people?

Home owning psychology

We now live in a low inflation environment – if inflation remains low there isn’t going to be the inflation to erode the mortgage debt and feed into increasing salaries that there was in the past. And yet there still pervades in British society this idea that you have to get on the ‘housing ladder’ at all costs. This is one of the reasons that young people are taking desperate measures to buy their first homes, sharing mortgages with friends, buying houses with very risky, high income multiple loans are two examples. High inflation in the past eroded mortgage debt and helped people move up the ‘housing ladder’ and there weren’t the high costs associated with buying and selling in the past either, now largely due to stamp duty.

Without higher inflation is there such a thing as a housing ladder? How are people going to move up the housing ladder if inflation isn’t eroding their mortgage debt and providing them with decent wage increases? If I buy a 1-bed flat today, how am I ever supposed to be able to afford to move ‘up’ to a small 3-bed family home to bring up children in?

The only thing I hear politicians talking about are “affordable housing” and “shared ownership” but this is not the answer as it can only provide support to very few people. House prices are artificially high. Housing supply is artificially restricted and lending is not regulated. Most of us don’t want to make money out of housing, we just want somewhere to call home, to call our own, somewhere secure that we can bring up a family. Do we no longer have a right to housing at a reasonable cost? Must my generation resign itself to a life in city centre flats?

I think that sums up things very well.

Jim_B_3

Need to buy a cheap DVD player: once a decade.
Need to pay the mortgage: Every month.
Need to pay the utilities: Every month.

Gordon can only fib about inflation for so long before the wheels fall off.

lisyloo

Totally agree with you and it isn't only the obvious petrol and gas that's based on fossil fuels.
It's anything with paint or plastic in it so that includes virtually all food containers (for example).
There is only so long that manufacturers can hold back prices before increases are unleashed on the public.

So given the graph I posted and the wheel are wobbling then I guess you'd have to agree with me that it's not the best time to buy anyway.

I know that renting is not ideal for some people for a number of reasons, but is it that bad for a while, whilst you wait for the wheels to come off?

meanmachine_2

Jim_B wrote:

Need to buy a cheap DVD player: once a decade.
Need to pay the mortgage: Every month.
Need to pay the utilities: Every month.

Gordon can only fib about inflation for so long before the wheels fall off.

We bought a *cheap* kettle the other month. Its handle is already falling off and the filter is going.

It might not be more expensive than a kettle made 15 years ago, but I now need to buy TWO kettles for every one.

Imports might not be going up in price, but you can be sure that their quality is going down.

To my mind that means we have inflation equivalent to around that of the 70s.

Funny that this govt never hedonistically adjust upwards to take account of poorer quality goods, isn't it?

PoorDave

F_T_Buyer wrote:

The only thing I hear politicians talking about are “affordable housing” and “shared ownership” but this is not the answer as it can only provide support to very few people. House prices are artificially high. Housing supply is artificially restricted and lending is not regulated. Most of us don’t want to make money out of housing, we just want somewhere to call home, to call our own, somewhere secure that we can bring up a family. Do we no longer have a right to housing at a reasonable cost? Must my generation resign itself to a life in city centre flats?

House prices are not "artificially" high. They are just high. The market conditions are what they are, and bleating about how it's not like the 1970's or whichever decade the "it's not fair i can't buy a house" brigade choose to compare today to.

I realise you are only quoting someone else (i assume "HPC" is the joyous forum that is the House Price Crash website!), but you seem to agree with the sentiments.

No, I suppose it's not fair it was easier even just a few years ago than it is today, but that's the way of the world. Mnay things aren't fair to all concerned.

I am 27 and on what you might call the 2nd rung of the ladder, but i would have much more capital (and probably a bigger house) than i do now if i'd bought the second i could afford to, but i don't because i didn't. I don't feel hard done by

the*dark*one

lisyloo wrote:

I know that renting is not ideal for some people for a number of reasons, but is it that bad for a while, whilst you wait for the wheels to come off?

I am in a similar situation to the person who F_T Buyer quoted from the HPC forums.

As for renting, I spend £300 more in rent per month than my parents pay for their mortgage on a 4 bed semi-detached house in London. Not only that, if you can’t afford to rent out a ‘decent’ flat you are stuck with renting a room and then you get unscrupulous landlords who will exploit you because they know that there isn’t affordable housing available, don’t even get me started on poor living conditions. Oh yes, you also have to put up with other people’s habits and standards of living if you can’t afford your own place which can be very stressful if people are nasty (9 times out of 10 they are) and you’d be surprised how angry it makes you when you find your housemate’s minging hair in the bath plughole again and how easy hostile situations can arise.

BobProperty

Kaminari wrote:

I also believe that if you THINK you can't do something, then you won't be able to.

Henry Ford beat you to that one - I think his quote was "If you think you can do something or you think you can't do something, you're right."

Jorgan wrote:

Personally I don't think its ever been 'easy' for FTB to get on the ladder. Peoples expectations have certainly changed, more people seem to want or expect everything now.

Interest rated used to be higher for our parents, 7-9% seemed to be the norm. Also mortgage money wasn't so easy to come by. My boss tells me stories of having to wine & dine Building Socitiey managers to try & get them to give their allocation of monies to be lent that month to his buyers. Once their allocation had run out, that was it, no more lending for the month. Compare that to today were lenders are offering 125% mortgages & over 4 times income in some cases.

I can remember a friend being in this situation, the broker had to trawl around offices of small building societies to find someone with funds still available that month. If I remember correctly he had a mortgage on a house in Manchester with the Heart of Oak Building Society Stow-on-the-Wold branch.(very local !)
As I said previously, to make things easier for our "want it now" society we have IO, or 40 year mortgages at 5.5 x income. This must contribute to the house price inflation we have seen recently. Would we have had all the increase we have had recently if lenders never went above 3 x income, 25 years, repayment and minimum 10% deposit?

lisyloo

We bought a *cheap* kettle the other month. Its handle is already falling off and the filter is going.

Off topic hints
1) Buy items with long guarantees. That way if they fail you'll get the replaced.
2) Get a credit card that extends manufacturers warranties on electrical goods.