First time buyers priced out...

Losing_the_way

Jimmy_31 wrote: »

Correct on that point, thankfully im biding my time and waiting for the boom prices to go away on some properties and then buy one of them.

I hear your kind of sentiments all the time, People can debate the ups and downs of the market till their blue in the face but when it comes down to whether to buy or not is in the end often an emotional issue.

One thing I often see is how a change of prospects bumps people onto the property ladder, promotion, new child, etc, are often sited. The difficulty recently is that there is just a lack of confidence that things are going to improve. That in turn robs out any progress in the market which in turn feeds back in as stagnation. It's a catch 22 situation, which is what you correctly identify. Hope that at some point you can again feel that the market has finished stagnating and that you can then feel safe to go ahead and purchase.:)

As a footnote couples purchasing often come with twice the emotional baggage. They are afflicted with the fear that either of them might lose the jobs and/or leave the relationship. I wish it was as convenient as it was decades ago when multiples could be secure on single income but that's history.

Loughton_Monkey

A very 'interesting' debate on affordability - despite a bit of venom and even parrots.

The thing that bothers me is the lack of clarity [I'm talking generally. Not specifically on this thread, which has been reasonably rational in parts] as to the linkage between house prices and affordability.

Of course it's a very emotive subject, but hardly difficult. It would be capable of sensible debate in any 13-year-old's economics class. What we have is this:

1. A reasonably large downward 'adjustment' to house prices in 2008 for a number of reasons.
2. Since then, interest rates have been maintained at record low levels.
3. In the aftermath of the 'adjustment', lenders are now required to put up a minimum of 15% deposit (say) before they can borrow. Instead of (say) 5%.
4. House prices are stagnating, and are expected to do so for a number of years.

Now the biggest 'flavour' of ignorant thinking is the general theme that house prices need to not go up - or preferably go down a bit - because unless they do, I can't afford to buy. This is complete balderdash and woolly thinking of the worst kind. You're looking, perhaps, to get a £100K house. You were on the cusp of saving £5K deposit. NOW you have to save another £10K.

So house prices drop a massive 10%! Even assuming no further mortgage tightening, then what are you looking at? You now need to find £8,500. OK, slightly better than £10K but it hardly saves the day does it? Total deposit of £13,500 instead of £15,000. Just a few more months of saving will do it won't it?

Lower house prices are simply not the panacea for better affordability. The rules have changed. You now need a much bigger deposit. Tough. Live with it. Moan about it by all means. Curse the bankers. But don't think lower house prices are going to solve that.

A more sensible approach would be to calculate current mortgage rates on your (say) £80K. Now double it. Because as night follows day, interest rates will eventually double - if not treble. Now if you can afford that, then fine. Save that money, and in about 3 years or so you will have the deposit. The problem here, of course, is that many people chose to 'leave the nest' and pay someone else's mortgage. So basically you are looking at 6 years perhaps to find the deposit.

The smarter potential house buyers will be (a) saving like there is no tomorrow, and (b) hoping that prices do not drop - and perhaps rise a bit - so that lenders become slightly more confident and perhaps lower the deposit requirements. Smarter youngsters will do (a) while still living at home scrounging almost-free rent from parents. That way they will get their mortgage way before renters. Either way, we are simply looking at 'time'.

Once anybody has got the house, then affordability is no different from the way it has always been [except that currently it's extremely 'cheap']. Personally, I see today's 'position' no worse than in 'the old days' when it was quite normal, for most of us, to see half our income go out regularly just to service the mortgage. Under circumstances like that, you could save up a 15% deposit in about 6 months!

the.ciscokid

Loughton_Monkey wrote: »

So house prices drop a massive 10%! Even assuming no further mortgage tightening, then what are you looking at? You now need to find £8,500. OK, slightly better than £10K but it hardly saves the day does it? Total deposit of £13,500 instead of £15,000. Just a few more months of saving will do it won't it?

So that is 10% less you need to borrow, which over the life of the mortgage is significant? Plus, you need to borrow even less, since you saved a larger deposit.

Loughton_Monkey wrote: »

Lower house prices are simply not the panacea for better affordability.

If cheaper stuff doesn't make it more affordable, what does it do?

Loughton_Monkey wrote: »

The rules have changed. You now need a much bigger deposit. Tough. Live with it. Moan about it by all means. Curse the bankers. But don't think lower house prices are going to solve that.

More debt! That's the solution! Why haven't we thought of this before!

Loughton_Monkey wrote: »

A more sensible approach would be to calculate current mortgage rates on your (say) £80K. Now double it. Because as night follows day, interest rates will eventually double - if not treble.

So what does that do for affordability? Better to buy in a high interest rate environment, and expect interest rates to fall, than the other way round.

Loughton_Monkey wrote: »

Now if you can afford that, then fine. Save that money, and in about 3 years or so you will have the deposit. The problem here, of course, is that many people chose to 'leave the nest' and pay someone else's mortgage. So basically you are looking at 6 years perhaps to find the deposit.

The smarter potential house buyers will be (a) saving like there is no tomorrow

Yes.

Loughton_Monkey wrote: »

(b) hoping that prices do not drop - and perhaps rise a bit - so that lenders become slightly more confident and perhaps lower the deposit requirements.

No.

Loughton_Monkey wrote: »

Smarter youngsters will do (a) while still living at home scrounging almost-free rent from parents. That way they will get their mortgage way before renters. Either way, we are simply looking at 'time'.

Once anybody has got the house, then affordability is no different from the way it has always been [except that currently it's extremely 'cheap'].

What is extremely 'cheap'?

Loughton_Monkey wrote: »

Personally, I see today's 'position' no worse than in 'the old days' when it was quite normal, for most of us, to see half our income go out regularly just to service the mortgage.

What was wage inflation like in your day? How quickly did that "half our income" reduce, and out of interest were you a household of 2 working people?

Loughton_Monkey wrote: »

Under circumstances like that, you could save up a 15% deposit in about 6 months!

I don't understand the last bit, are you saying you used to be able to save 15% deposit in 6 months? I think you are out of touch.

Cleaver

Graham_Devon wrote: »

Your struggling with the bristol stuff. Buying houses are currently made up of a deposit and mortgage payments. We could ignore the deposit for a few years. We can't now. No matter how much people want to. If you want to disagree with this, feel free, but leave out the parrots.

Graham, where have I said that we ignore the deposit? And I wasn't struggling with the Bristol argument, I was showing an absurd end of the spectrum.

Anyway, as I said before, you win, you're correct. Banks state what is affordable, and houses aren't affordable, just like Ferraris.

B_Blank

Cleaver wrote: »

Graham, I have to ask, are you being deliberately obtuse purely for the sake of it? You know full well that this isn't what Julie is saying. I pretty much agree with her point that 'affordability for a couple is good in most parts of the country', but maybe not with the same passion. For most couples earning a semi-decent, average wage, they can borrow up to 3.5x their salaries and afford to buy an above average house in most parts of the country.

Let's not get bogged down in average salaries and average house prices as we'll be here until 2045, but according to the BBC the average house price in 8 out of 12 regions is £177,000 or below, which is around 3.5x the joint wage of a couple earning about £25,000 each. As I say, we can get in to the detail, but that's about right.

So in terms of 'affordability', Julie is pretty much correct. Most (which is a subjective term, granted) couples can afford to comfortably borrow a managable amount to buy a pretty average house in most areas of the country, at least in terms of what we've historically deemed as 'affordable'. There are obviously a number of people who can't and that's where I am in complete agreement with you that it would be nice to see prices fall in some regions so that people can afford to buy. As I've said before, I have no idea how a FTBer in Kent, Cornwall or London even begins to buy somewhere semi-decent as a first home. And it seems that we're right at the limit of affordability, so I think stagnation for a decade may be in sight, but lets not get off topic.

The point Julie was making is that most couples, on a fairly standard joint wage, can 'afford' to borrow £150,000 (for example) and 'afford' the monthly repayments on a 4% to 8% mortgage, which is the rates we're likely to see over the next decade. What I think she was then saying is that most banks seem to be requiring a 20% deposit (or more), which is much more difficult for the couple to manage. On a typical £170,000 house it'd be £40,000 minimum with fees, which seems excessive if the couple can 'afford' the house.

Your example about you not being able to afford a Ferrari is beyond ludicrous, as it has nothing to do with the point at hand. Presumably, if you're on a typical wage like I am, you can't afford a Ferrari, whichever way you look at it. Unless you have £100,000+ saved up, or are willing to find a bank who will lend you £100,000 as an unsecured loan on a vastly-depreciating asset, then you can't afford one. This is very different to a couple borrowing 3x their earnings on a secured loan to buy an asset which the bank are fairly certain will retain the bulk of its value or, in all probabilty, rise in value over the medium to long term.

So I agree with Julie, most couples can 'afford' to buy a house. This doesn't mean that I feel that all houses are fairly priced, or that it wouldn't be beneficial to society to see falls. But this has nothing whatsoever to do with you not being able to 'afford' a Ferrari. In my humble opinion all of your 'it makes me feel better, I KNOW I can afford a Ferrari...' ranting just makes you sound really obtuse and unable to debate with Julie's points.

Affordability is something that each and every person has to decide for themselves. There is no hard and fast rule for affordability.

Personally, I do not think house prices are good value for money right now, and so I wont buy one (even though I could). I think houses (in general) are currently way overpriced, and so I dont want to pay for it.

If they dont come in line with what I PERSONALLY think they are worth then I wont buy in my lifetime. If they do then I will buy.

It really is as simple as that. There is no bear and bull arguement here. Julie thinks that houses are good value for money (and affordable) right now. Ok, fine, she can buy all the houses she likes.

I dont think housing is good value for money right now, so I wont buy. Thats fine too....we all have to make our own decisions.

B_Blank

Loughton_Monkey wrote: »

A very 'interesting' debate on affordability - despite a bit of venom and even parrots.

The thing that bothers me is the lack of clarity [I'm talking generally. Not specifically on this thread, which has been reasonably rational in parts] as to the linkage between house prices and affordability.

Of course it's a very emotive subject, but hardly difficult. It would be capable of sensible debate in any 13-year-old's economics class. What we have is this:

1. A reasonably large downward 'adjustment' to house prices in 2008 for a number of reasons.
2. Since then, interest rates have been maintained at record low levels.
3. In the aftermath of the 'adjustment', lenders are now required to put up a minimum of 15% deposit (say) before they can borrow. Instead of (say) 5%.
4. House prices are stagnating, and are expected to do so for a number of years.

Now the biggest 'flavour' of ignorant thinking is the general theme that house prices need to not go up - or preferably go down a bit - because unless they do, I can't afford to buy. This is complete balderdash and woolly thinking of the worst kind. You're looking, perhaps, to get a £100K house. You were on the cusp of saving £5K deposit. NOW you have to save another £10K.

So house prices drop a massive 10%! Even assuming no further mortgage tightening, then what are you looking at? You now need to find £8,500. OK, slightly better than £10K but it hardly saves the day does it? Total deposit of £13,500 instead of £15,000. Just a few more months of saving will do it won't it?

Lower house prices are simply not the panacea for better affordability. The rules have changed. You now need a much bigger deposit. Tough. Live with it. Moan about it by all means. Curse the bankers. But don't think lower house prices are going to solve that.

A more sensible approach would be to calculate current mortgage rates on your (say) £80K. Now double it. Because as night follows day, interest rates will eventually double - if not treble. Now if you can afford that, then fine. Save that money, and in about 3 years or so you will have the deposit. The problem here, of course, is that many people chose to 'leave the nest' and pay someone else's mortgage. So basically you are looking at 6 years perhaps to find the deposit.

The smarter potential house buyers will be (a) saving like there is no tomorrow, and (b) hoping that prices do not drop - and perhaps rise a bit - so that lenders become slightly more confident and perhaps lower the deposit requirements. Smarter youngsters will do (a) while still living at home scrounging almost-free rent from parents. That way they will get their mortgage way before renters. Either way, we are simply looking at 'time'.

Once anybody has got the house, then affordability is no different from the way it has always been [except that currently it's extremely 'cheap']. Personally, I see today's 'position' no worse than in 'the old days' when it was quite normal, for most of us, to see half our income go out regularly just to service the mortgage. Under circumstances like that, you could save up a 15% deposit in about 6 months!

Loughton Monkey doesnt believe lowering the price of something makes it more affordable! What a genius.

Cleaver

B_Blank wrote: »

Affordability is something that each and every person has to decide for themselves. There is no hard and fast rule for affordability.

Well according to Graham there is. It doesn't really have anything to do with how much the person earns, their disposable income or how much house prices are. It's all down to how much the bank will lend and what their deposit requirements are. Which technically is quite correct.

B_Blank wrote: »

Personally, I do not think house prices are good value for money right now, and so I wont buy one (even though I could). I think houses (in general) are currently way overpriced, and so I dont want to pay for it.

Okay, so to you a house is affordable. You just don't see it as value for money. Which makes sense, but obviously shows that perceived value for money and affordability are two very different things. Just as another example, I can afford to buy shares in M&S, but I don't think they are value for money, so I won't.

B_Blank wrote: »

It really is as simple as that. There is no bear and bull arguement here. Julie thinks that houses are good value for money (and affordable) right now. Ok, fine, she can buy all the houses she likes.

Julie may think houses are good value for money at the moment, but just to be clear, she didn't say that in this thread (or at least it wasn't what Graham and I were discussing). She said that there are houses that are affordable to most couples.

B_Blank wrote: »

Loughton Monkey doesnt believe lowering the price of something makes it more affordable! What a genius.

If you ever wanted a textbook example of someone posting an interesting, thoughtful, intelligent post and then someone not getting the point at all, then this would be it.

AliceBanned

Graham_Devon wrote: »

You are never gonna change her mind.

I mean, look at this for a messed up sentence...

Affordability is good.....but they can't get enough debt...therefore they can't afford it....but erm, affordability isn't the issue?

So they can't afford it then? Affordability isn't good. What she's actually saying is credit isn't great right now compared to the hand outs people got leading up to the crash.

I like my ferrari's. Affordabilty is good for me. But the damn banks won't give me a 30 year loan secured on the car. I could afford the repayments, but for some reason, the lending is rationed. It's the banks fault I can't have the ferrari.

I can afford it though. Just, well, not without the banks giving me the money. Does that make sense? I know it doesnt...but go along with it. It makes me feel better, as deep down, I KNOW I can afford a ferrari.

A ferrari is a luxury unnecessary item. Personally I don't think a owning a basic flat in a less than perfect area is a luxury at all. It's been said so many times on here I'm sure - investors who benefited during the "boom" from cheap credit and now have a property portfolio can buy the flats and rent them out - to the ftbs who now can't get a mortgage because they need at least £10k for a deposit - on an average wage it takes years to save that, when paying rent to one of these investors or some other landlord, which is rising all the time, along with increasing inflation and in many cases pay freezes. I can't believe you can think speaking of ferraris is relevant and it is insensitive to make such a remark.

I have an 18 year old Fiesta, rent from a social landlord (still not cheap), earn a low-average wage and don't consider myself struggling, but have no savings due to the high cost of living including expensive rail fares as I can only get work in London at the moment, and opportunities seem to be reducing. I don't give a damn about the Fiesta which is falling apart and scrapes through the MOT each year, but my long term finances, particularly if I continue to rent and reach pension age still doing so, are a concern to me and I'm hoping to improve them, but it isn't easy and it isn't as though I squander my money either.

I'm not blaming anyone or the economic situation for my situation, but there is nothing wrong with wanting to improve it, and for many obtaining a sensible mortgage rather than renting for life would be an improvement on quality of life and is not the same as getting into debt to own a car which is frankly just a way of overcompensating for something.

System

B_Blank wrote: »

If they dont come in line with what I PERSONALLY think they are worth then I wont buy in my lifetime. If they do then I will buy.

So, do you think renting for life is better value for your money?

WayneB73

I build new houses for a living and sales are so slow at the moment, I agree first time buyers are hit the worst..

I think the salary to house value, cost of living and how much you need to pay for a mortage of around 100k is a strugle for most people. even earning a 30k salary you have nothing left at the end of the month once you pay all other bills and there are far more people living alone and single now than 20 years ago..

If the govurment go about it in the correct way they could make a killing by creating deals with banks and social housing to help people onto the housing market, after all there is such a demand for social housing, they want to build more houses so there is more choice in the hope propery prices will fall allowing people to buy. That has a negative effect as it would cause negative equity for some people..

in a nut shell, house prices are to high and wages are way way to low for the cost of todays living and with the cost of inflation we will be worse off in 5 years than we are now..

On the BBC news last week, they said most people in construction are earning on average £99 less per month, well my self alone am more than £100 a week worst off after a paycut not to mention the amount of work available to me is down at least 5/10%..