MSE News: Home ownership dream dwindles for young renters

ukcarper

geoffky wrote: »

I was 18 when i bought my first house in 1982..no one could afford to buy that house now days on a one person wage and it was a 19k mortgage..people now have been royally shafted..high house prices only help the banks and the higher they go the more people have to pay out of their wages just to keep a roof over thier heads....when will the madness end...

You were luck that is the lowest house prices have been compared to wages apart from the mid 90s always nice to buy at the bottom of crash.

Madness might end if they build more houses

jamesd

Gorgeous_George wrote: »

2. Mortgage offers should have capped repayments. For example, take a mortgage with a £500 monthly repayment and you should be given a promise that you will not be asked to pay more than £600 - plus index linking - for the life of the mortgage. Instead, you would be able to extend the term indefinitely even if it is necessaery to go 'interest only' in order to maintain the index linked mortgage repayment.

That would be a good type of approach, though I'd modify it a little:

1. Start at 35 year nominal term.
2. Start at interest only with payment cap of 6% interest equivalent.
3. Increase payments by wage increase percentage each time pay goes up.
4. Additional cap at amount needed to repay mortgage on repayment basis.
5. Adjust 6% cap if there are five years of sustained higher than 6% interest rates.
6. Review progress towards clearing the mortgage regularly, particularly for job changes that produce sustained reduction in income.

If wage inflation was 1% more than a 3% Bank of England inflation target it takes just five years before the repayments could rise to 25 year repayment mortgage level.

Froggitt wrote: »

Secondly, how on earth does johnny foreigner who rents all his life afford his rent for thirty years once he retires?

I bought a place last autumn at far less than 3.5 times income multiple. A few months later my savings and investments reached a value that would let me pay all my bills for the rest of my life even if I never worked again, though without sufficient safety margin. That included clearing the mortgage on time. Same applies to rent. Wherever you're living you somehow need to have the income to cover a place to live. Those arrangements may be portable between countries. For a retiree, pension income seems likely.

franklee

Gorgeous_George wrote: »

Here's a couple of ideas that could help people to buy their own homes...

1. A validated rent book should be accepted as proof of budgetability when lenders consider making a mortgage offer. If you can prove that you have paid £650 per month in rent there is little excuse for not allowing a 100% mortgage with a £500 repayment over 35 years or to the age of 65.

If house prices are rising then it may be got away with, no one loses. If they are falling however I can quite see why the bank wants to see a 20% deposit put in. It's about the amount of risk they're taking. If house prices fall say 20% then how will they get their money back if the "owner" defaults on their monthly mortgage payments?

Gorgeous_George wrote: »

2. Mortgage offers should have capped repayments. For example, take a mortgage with a £500 monthly repayment and you should be given a promise that you will not be asked to pay more than £600 - plus index linking - for the life of the mortgage. Instead, you would be able to extend the term indefinitely even if it is necessaery to go 'interest only' in order to maintain the index linked mortgage repayment.

Surely these figures should depend on the level at which the bank has to pay for the money they're supplying. If people want certainty they can take out a fixed rate mortgage. As for going "interest only" or extending the term past retirement, how will be debt be repaid?

The proposals in the article "Mortgages should be capped at 90% of a property's value, while people should also be prevented from borrowing more than 3.5 times their income, according to the Institute for Public Policy Research (IPPR)." are just going back to what was for many years, until this last bubble took hold, the norm. It really is sensible IMO surely we want the banks etc. to take on board the mistakes they made (causing harm to the economy) and act responsibly from now on.

The_Negotiator

The chances of there being 2 salary earners in a family in 2011 are significantly higher than in 1978, social change needs to be factored in also.

jgriggle wrote: »

An interesting little exercise for anyone who bought their house a few years ago is to go to one of the inflation calculators, and work out how much you paid for your house in today's money. Or even to find out how much your children are paying in rent compared to what you did at the same age. You may be shocked!

Let me give you a little example:

My Dad bought his first house (a two bed mid-terrace) in 1978 for £11,995. At the time he was earning £4,000 a year. After a few years of diligent saving, he was able to put down a 10% deposit and borrow the rest comfortably within the 3.5 x salary that was the norm.

In today's money that would be a salary of £18,320 a year (a little less than what I earn now and about average for where we live). The house would be £54,937, requiring a deposit of £5,494, and a mortage of £49,443. To me that's sensible. By no means easy, but do-able.

As it happens, that same house recently sold for £149,000. As most mortgages seem to require a 20% deposit now, I'd have to save up £29,800!

So whereas Dad had to save about five months worth of take home pay for his deposit (which would still be a struggle for most) I'd now have to save up getting on for TWO YEARS worth of take home pay, even though I earn the same (adjusted for inflation) as he did.

At the time Dad was paying just under a quarter of his take-home pay on rent (for a bigger house than the one I'm in at the moment!). The norm for most renters now is paying out at least half your salary on even the tiniest house/flat.

etruscanshades

We oldies have creamed all the money from you youngsters. We not only got free university places, we got living expenses paid by the government! and we got decent education. Now we make you pay a fortune for mediocre degrees, go into huge debt, and then the real killer is that you have to pay the giant house price increases that we have profited from.

Mind you if I had a choice, I'd rather to be young again and in your situation!

ukcarper

etruscanshades wrote: »

We oldies have creamed all the money from you youngsters. We not only got free university places, we got living expenses paid by the government! and we got decent education. Now we make you pay a fortune for mediocre degrees, go into huge debt, and then the real killer is that you have to pay the giant house price increases that we have profited from.

Mind you if I had a choice, I'd rather to be young again and in your situation!

How many of us got that free university education mind you didn’t really need it back then as you could get a perfectly good job without one.

I agree with your second point I reckon my house is worth about £60k more than it would have been if it had only kept up with wage inflation I’d give that up to be 21 again.

Percy1983

The_Negotiator wrote: »

The chances of there being 2 salary earners in a family in 2011 are significantly higher than in 1978, social change needs to be factored in also.

But which has pushed which? are house prices higher because there is 2 earners, or is there 2 earners because house prices are higher?

I say that was a couple who want to buy a house and start a family, if one of us could go part time or quit to stay at home with children we would, but that just isn't an option as the only way we can afford a home is to both work full time.

tara747

jamesd wrote: »

I don't see a sufficient reason to make them wait the extra 12 years it would take to accumulate the additional £148,000 on the £994 left over after borrowing £148,000 or the 8.5 years if they carried on renting.

But one would *hope* that house prices would fall and stay low (and stable), therefore they would need less deposit and less mortgage. Better, no?

tara747

Brallaqueen wrote: »

I'm interested in this because, according to the Nationwide mortgage calculator, my deposit appears to have no effect on the amount that they will lend to me. They seem pretty set on salary multiples (crap, for me).

dorset_nurse wrote: »

I agree. If I wanted to push the boat out and can afford the monthly repayments I wouldn't want to wait.

I am constantly amazed by those who literally BEG banks to lend them more, more, more. :eek: Why?

tara747

HAMISH_MCTAVISH wrote: »

The average mainland UK rent is now almost £700 a month, and rising rapidly. Up 4.4% in the last year, which is twice the rate of inflation.

Council tax in the mainland UK is paid by the tenant, not the landlord, and adds a further £1500 to £2000 per year on average.

So for that to be less than 10% of joint income, you'd need to be on over £100,000 a year as a couple.

Not quite...

Our rent is just over £6,000 a year (and, like I said, less than 10% of our income) and has not risen in 4 years.

Here, happily, LLs pay the rates (council tax), so renters have no further housing outgoings whatsoever.

I'm sure you'll agree that it's good to rent in NI (even if not elsewhere). :A

Whoever said that they were spending 50% of their income on rent must be living somewhere insanely expensive or on a very low wage. Either way, it's beyond their means.