House prices, according to Mum and Dad

whambamboo

by the way, interest rates were as high as 7.5% only seven years ago, in September 1999. Has anyone considered whether they could afford their mortgage if interest rates almost doubled to 7.5%?

So much for permenanently low.

It seems *exceptionally* foolish to say that because interest rates have been below 5% for a very brief period of only 4 or 5 years, they will stay that way.

sanfrancisco

Id rather borrow a small amount with high interest rate, than a large amount with low rates. In scenario one rates are likely to move down, less up risk, in scenario two rates are likely to go up. It's all bunkum. Whatever measure you use and however you manipulate statistics house prices are at an all time high. It is alienating vast swathes of society. For the first time in my life I have an understanding of why and how wars are created. When people feel isolated/left out/ not listened to then one day it will come back to bit society on the bum!

whambamboo

EdInvestor wrote:

These days it's quite possible for people to pay off their mortgage in less than 10 years if they try hard.There is even a forum on this site to encourage posters to do so. That would have been utterly impossible in those days.

No, that's not the case. It's possible to pay off your mortgage, IF YOU TOOK IT OUT 10 YEARS AGO.

Do tell me how people would do this with a £200k mortgage now. Most of these people in these boards are talking about £50-£60k mortgages (which they consider large, ha ha) on houses now worth triple that.

It was not the debt itself that made house prices unaffordable in those days - you hardly paid back any of the debt for most of the mortgage term. It was the interest on the debt that made home ownership so expensive

You pay off the debt at the same rate then as you do now, you just paid more interest on your debt. It made far more sense to overpay then than now.

And regardless of interest rates, the value of the underlying debt was falling every month. So yes, after 5 years, the debt would be worth far less than it was when you took it out - if you owe £5000 and rates are 12%, then you pay £600ish interest per year, and after 4 years, you might owe £4200, and interest is £504. BUT, because of soaring wages/inflation in the 1970s, £4200 is now only worth £2,500.

I don't think this is a hard concept to grasp - if pay & inflation is soaring, even if you have an interest-only mortgage when you pay off NONE of the debt, the repayments become MUCH easier to make. Home ownership was only expensive for the first few years - repayments were not going up, because you borrowed the value of the house when you bought it.

EdInvestor

Whatever measure you use and however you manipulate statistics house prices are at an all time high. It is alienating vast swathes of society..

I find this difficult to believe.

Thirty years ago, less than 50% of the population were owner-occupiers, the majority were excluded because home ownership was unaffordable.

Now, 71% are home owners and something like half the homes in the UK are owned outright.

The TV is awash with programmes about property, more and more people are queuing up at the banks for mortgages and remortgages every day.In the 60s and 70s, it took years to persuade a BS to lend you money to buy a house - mortgsages were effectively rationed.

Of course no-one's denying that buying a house is a struggle at first.But it has always been so - it has never been easy, as the chart shows. It's a lot easier than it was, believe me.

EdInvestor

And regardless of interest rates, the value of the underlying debt was falling every month..

No it wasn't.Mortgages were structured differently then.The interest was front-end loaded. It was not possible to reduce the capital without repaying all the interest first.

mystic_trev

It seems to me that Diana has worked out the "affordability" study on her earnings and not what the average person is earning!

Interesting article though - thanks.

whambamboo

EdInvestor wrote:

No it wasn't.Mortgages were structured differently then.The interest was front-end loaded. It was not possible to reduce the capital without repaying all the interest first.

regardless, as I said, even with interest-only, with soaring inflation, mortgages got more affordable every year, because £5,000 in 1979 would take you as long to earn as £2,500 would have in 1974 - wages were doubling in a few years.

That isn't happening now, you will have a massive millstone of debt that will still be a very large amount of money, and interest rates are going up to boot.

Still, yes you're right, there are lots of property !!!!!! programs on TV, and I regularly see queues of people 20-deep (yeah right, what a load of crap) outside the bank, all keen to mortgage that wonderful £200k studio in fabulous Feltham.

I'm not sure though why you think the property !!!!!! means it's a good time to buy. This seems to me analagous to the people seeing ads for guaranteed equity bonds, which are a heavily marketed con, and which you rightly rubbish, but yet, when it comes to people being told they simply have to be a home owner at whatever cost, otherwise they are a failure in life, almost as bad as tramps in the ditch, you are shouting 'BUY BUY BUY'.

Regardless of your incessant spin, it's clear:

houe prices are at their highest level ever (YES)
house prices are at their highest ratio relative to incomes ever (YES)
interest rates are rising (YES)
if you borrow now, inflation is unlikely to erode the value of your debt, so you will be saddled with it for decades to come (YES)

Has this ever been true in the past? NO.

And yet, you still think it's better to buy now than in the 70s.

Ha ha ha ha ha.

seven-day-weekend

EdInvestor wrote:

In the 60s and 70s, it took years to persuade a BS to lend you money to buy a house - mortgsages were effectively rationed.

QUOTE]

Quite true; we got turned down by three lenders in 1976, although we were both working and the property was well within our reach on ONE income; they didn't want to lend on an old house (Victorian Terrace) and when we finally got one that would lend on it we had to pay £700 deposit out of the £3000 asking price. (We borrowed the deposit from a relative).

zag2me

Excellent chart, just re-enforces what my dad said about it being virtually impossible for him to buy 30 years ago, and that I "had it easy" Not sure I agreed with him on that one, but interest rates are very low at the moment historically so im not going to complain too much.

sm9ai

Easier to get a mortgage yes, but easier to pay it. Certainly not.