Selfish Britain

ash28

Degenerate wrote: »

20 years ago the BOE base rate was 14%.

So let's take a house in Greater London worth £100K at Q3 1990 prices as an example. According to the Halifax price calculator, this house is worth £278,294 in Q3 2010. Assuming a spread of 4% over BOE base rate (fairly typical at the moment) for argument's sake:

Q3 1990: £100,000 over 25 years repayment @ 18% = £1,517.43 per month.
Q3 2010: £278,294 over 25 years repayment @ 4.5% = £1,546.85 per month.

Wow, those are pretty close. Wait a minute, how much has income risen since 1990?...

We bought our first house in 1982 on one income, I worked part time and we had 3 kids. Interest on our mortgage was 12% - in the late 1980s it reached somewhere in the region of 16% for about a year our £60k mortgage used to cost around £800 a month - so for the first 10 years of buying a house interest rates were in double figures most (not all) of the time. It severely limited what you could borrow - well for us it did anyway. Our lives seemed to revolve around monthly BoE interest rate announcements, the banks and building societies were pretty quick to implement any increases.

We moved a couple of times during those 10 years and each time our move was based on what we could afford to repay every month and as interest rates came down and we made the move to our current house in 1993 we were paying less for our £80k mortgage than we did for our £60k mortage, now we are paying about half the amount for our £80k mortage than we were 20 years ago for our £60k mortgage.

In the late 1980s we worked on about £13 to £14 per £1000 borrowed - now it would be about £5 to £6 per £1000 borrowed.

Being first, second, third and fourth time buyers during that period made us extremely cautious about what we could afford to pay for a house and we also learnt the hard way that prices could go down as well as up, the house we had a £60k mortgage on fell by about 35% during the last crash (south east). There were times we really regretted ever buying a house - we seemed to be skint for years. The light at the end of the tunnel was to be "rent free" during retirement - the reason we bought in the first place.

We had several friends who were in serious negative equity - those who had taken 90% mortgages at the peak of the market. The couple we bought our £60k mortgaged house from lost their beautiful brand new 4 bed detached - they (and we) bought in a lull when interest rates were in single figures which happened to coincide with peak prices - the rise in the next couple of years to 16% absolutely crippled them - they ended up divorcing. The difference between us was that we felt we were never able to afford to buy the type of house we really wanted - even this one was a compromise.

Compromise is the story of my life.

danielanthony

Why do people start families and then complain about the size of their accommodation and not being able to buy? Surely getting on the property ladder 1st would be the sensible thing before taking on the expense of children and compounding that with loosing the mothers salary (even more difficult to get a mortgage then for the house you'd want).

Me and my missus are in our 30's and just bought our 1st place, getting married, and intending on having kids, it's called financial planning and contraception.

DervProf

Degenerate wrote: »

20 years ago the BOE base rate was 14%.

So let's take a house in Greater London worth £100K at Q3 1990 prices as an example. According to the Halifax price calculator, this house is worth £278,294 in Q3 2010. Assuming a spread of 4% over BOE base rate (fairly typical at the moment) for argument's sake:

Q3 1990: £100,000 over 25 years repayment @ 18% = £1,517.43 per month.
Q3 2010: £278,294 over 25 years repayment @ 4.5% = £1,546.85 per month.

Wow, those are pretty close. Wait a minute, how much has income risen since 1990?...

Fair point, but here`s my first reaction.......

Take on that £1,546.85 per month mortgage today. What is more likely to happen, payment rise or fall ?

Take on the mortgage in 1990 @18%, what is more likely to happen, payment rise or fall ?

And for those (including myself) who couldn`t afford to buy when rates were 18%, what happened to them ? I know what happened to me, I waited 4 years, rates came down to around 7% and property fell in price. I was then able to buy.

For those who can`t afford to buy today, it`s unlikely that rates will fall much, so that isn`t going to help. What will ?

gauly

Degenerate wrote: »

20 years ago the BOE base rate was 14%.

So let's take a house in Greater London worth £100K at Q3 1990 prices as an example. According to the Halifax price calculator, this house is worth £278,294 in Q3 2010. Assuming a spread of 4% over BOE base rate (fairly typical at the moment) for argument's sake:

Q3 1990: £100,000 over 25 years repayment @ 18% = £1,517.43 per month.
Q3 2010: £278,294 over 25 years repayment @ 4.5% = £1,546.85 per month.

Wow, those are pretty close. Wait a minute, how much has income risen since 1990?...

It's a really interesting point that you make but I still reckon houses are in many ways more unaffordable now. Firstly 1990 was a local peak in house prices and 2010 a local trough. Also, interest rates at 14% were only for a brief time - interest rates at 4.5% are never going to get any lower. Also, the average mortgage rate was not 4% over base rate in 1990 like it is now.

But the main reason a house was in some sense more affordable was because high interest rates go with high inflation and increasing wages. If a couple had stretched ourselves to the limit to buy a house with wages increasing at 10% a year say, after 5 years their payments will be less than 2/3rds as a proportion of salary - leaving them now able to start a family and survive on one wage (much as my own parents did). If you stretch yourself nowadays you are lumbered with a gigantic mortgage payment for decades.

ash28

gauly wrote: »

It's a really interesting point that you make but I still reckon houses are in many ways more unaffordable now. Firstly 1990 was a local peak in house prices and 2010 a local trough. Also, interest rates at 14% were only for a brief time - interest rates at 4.5% are never going to get any lower. Also, the average mortgage rate was not 4% over base rate in 1990 like it is now.

But the main reason a house was in some sense more affordable was because high interest rates go with high inflation and increasing wages. If a couple had stretched ourselves to the limit to buy a house with wages increasing at 10% a year say, after 5 years their payments will be less than 2/3rds as a proportion of salary - leaving them now able to start a family and survive on one wage (much as my own parents did). If you stretch yourself nowadays you are lumbered with a gigantic mortgage payment for decades.

High inflation didn't necessarily mean high pay rises for everyone - during the last recession a lot people - apart from being made redundant, a lot of people took pay cuts, me included (and it stood still for 3 years after that) - better that than no job at all. The trouble with that was you never really caught up pay wise again.

Prior to the last recession we used to get a cost of living rise and a performance based pay rise - when things got better the cost of living pay rise was never reintroduced though the performance based pay rise was.

Pay cuts weren't uncommon in the private sector during the last recession.

thorsoak

In 1963, b/s rate was 6.125%. Property cost £3,250, with repayments of £20.5s.3d per month (fixed for 20 years). JOINT Wage then was £17.11s.9d (gross) per week.

Someone else can work out the ratios/differentials between then and now

1984ReturnsForReal_2

thorsoak wrote: »

In 1963, b/s rate was 6.125%. Property cost £3,250, with repayments of £20.5s.3d per month (fixed for 20 years). Wage then was £17.11s.9d (gross) per week.

Someone else can work out the ratios/differentials between then and now

What was it in 1979?

thorsoak

1984ReturnsForReal wrote: »

What was it in 1979?

What - house price/b/s rate/wage? As we moved in 1976, I couldn't tell you house price - but when we sold, we sold for £11,500. Bought two old semi-derelict cottages for cash (7,500) and then re-built them, mortgaging after having put in basics.

In 1963, a woman was not able to get a mortgage on her own, nor were her earnings counted towards a joint mortgage - so although her name could be on deeds, she would not appear on mortgage!

thorsoak

Back in 1963 when we did buy our first house (and, for the record, we have only made 3 moves in 47 years) we moved in with a kitchen table & chairs - bought for £5.5s.0d with wedding present money, a second-hand bed (but new mattress) and two armchairs from my parents - and a new cooker bought on HP from Eastern Electricity! No fridge, washing machine, telly. We did have a portable radio (his) and a dansette record player (mine). We commuted into London daily - I worked as a temp - at the princely rate of 8s9d an hour (44p in today's money).

So tell me - how did we have it easy?

yorkshirekev

thorsoak wrote: »

Back in 1963 when we did buy our first house (and, for the record, we have only made 3 moves in 47 years) we moved in with a kitchen table & chairs - bought for £5.5s.0d with wedding present money, a second-hand bed (but new mattress) and two armchairs from my parents - and a new cooker bought on HP from Eastern Electricity! No fridge, washing machine, telly. We did have a portable radio (his) and a dansette record player (mine). We commuted into London daily - I worked as a temp - at the princely rate of 8s9d an hour (44p in today's money).

So tell me - how did we have it easy?

You didn't have it easy. In your case, just the fact that you were able to buy a house on such an income makes it different from today.

That is not to say that you have not worked hard and had difficulties. Nowadays if you want to buy a house as a FTB, then you will not be able to afford to get married and would have to be a far more senior position in your job.

As for having kids, late thirties would probably be a minimum. It is the timing of events like marriage, first house purchase and first child that has changed.