The dissapearing property ladder

westernpromise

danothy wrote: »

I take it then that it's asserted to be reasonable for someone earning £26k to take the maximum that will be loaned to them and commit a large percentage of their net income to mortgage payments?

Well, yes. Seriously, what do you expect? Are you suggesting that it should be possible to buy a home so cheaply that you don't notice the cost?

In my lengthy post above, I set out what it was actually like buying a London flat 30-odd years ago, which many seem to regard as having been some sort of golden era. My monthly cost of owning was between 50 and 94% of my net salary, accompanied by the risk and fact of capital loss.

You seem to be both resentful that others before you survived this, yet deeply reluctant to take on a much, much smaller cost and risk yourself today.

If that really is your attitude towards money then the politest way to describe it is "penny wise, pound foolish".

danothy

Loughton_Monkey wrote: »

the decision will always boil down to something like (a) Do I want to pay £600 for a mortgage in which case the house will be mine in 25 years, rent free, and I have the prospect of earning twice what I paid in tax-free equity? Or (b) Do I want to pay £750 a month for a comparable house, which will go up with inflation, be 'dead money' and after 25 years, I can look forward to paying for the following 30 years until I die!

I don't think my friend disputes the long term benefits of buying over renting, but his question is more along the lines of "If £600 a month is what is considered a high proportion of income to spend on a mortgage at a sub 3% interest rate that will inevitably rise, then how can borrowing that much be considered reasonable?".

It seems he may have little choice to borrow that much however, due to property prices (assuming he can get a rate that low). I wonder if he'll face criticism for taking on an unmanageable mortgage if rates rise and it becomes unaffordable though ...

danothy

westernpromise wrote: »

Well, yes. Seriously, what do you expect?

I expect there to be some continuity between what is held to be a reasonable proportion of gross income spent on a mortgage and what is required to be spent on a mortgage.

westernpromise wrote: »

Are you suggesting that it should be possible to buy a home so cheaply that you don't notice the cost?

No. I am asking for clarity on what exactly those advocating borrowing five time income think is reasonable to repay that borrowing, and how they reconcile that with other wisdom on the matter.

westernpromise wrote: »

In my lengthy post above

Frankly, I am uninterested in your 'lengthy' post.

westernpromise wrote: »

My monthly cost of owning was between 50 and 94% of my salary

Are you proud of this? You seem proud of this. Is there some assertion here that it is reasonable to pay those levels of income on a mortgage? If those levels are not reasonable, then what is it about an unreasonable proportion of income being paid on a mortgage that makes some other amount reasonable?

westernpromise wrote: »

You seem to be both resentful that others before you survived this, yet deeply reluctant to take on a much, much smaller cost and risk yourself today.

You have no idea what I do and do not resent in this world, nor do you have any idea about my reluctance or otherwise to take on costs or risks. Are you sure that it's not actually you who is resentful that it happened to you?

TheBlueHorse

who cares what is reasonable? That is the price. Either pay it or don't.

I borrowed 5x income for my first flat. I now earn more than double what I earned then. So had I continued to live there, my borrowing would now be approx 2x salary. However, I moved on up. borrowing more. Yes, a lot of my salary currently goes on mortgage repayments. Yes, I worked out if I could afford a rise in rates - I can. It'll be tight, but I can. So, you take the risk. I could die tomorrow. I could lose my job. House prices could crash. If rates went from 0.5% to 12% then I think we're all utterly utterly F***ED and I won't be the only person in trouble.

That said, if interest rates go up to 12% then it is likely pay rises will be a lot larger than they currently are.

It's all a gamble really.

If I lost my job I couldn't afford to pay back 1x salary - so what difference if it's 1x or 3x or 5x?

Graham_Devon

danothy wrote: »

No. I am asking for clarity on what exactly those advocating borrowing five time income think is reasonable to repay that borrowing, and how they reconcile that with other wisdom on the matter.

This has been raised a few times before now, and it appears 40-50% is what some appear to suggest is "do-able"...

I don't agree with that, and neither do I agree with the "take the risk, life is a gamble and mine went well" attitude. But some do do very well from taking the risk. Like you say though, when that risk goes wrong, they get lambasted as idiots.

lisyloo

Does "do-able" mean stretching yourself and not able to fund a pension properly?
I'd be ok with that short term if I had a reasonably good chance of career increases e.g. Doctor, dentist etc.
Otherwise I think it's sensible to make provision for pension contributions, insurance and reasonable levels of contingency.

I think 50% is ok if you're prepared to tighten your belt a bit.

ukcarper

Graham_Devon wrote: »

This has been raised a few times before now, and it appears 40-50% is what some appear to suggest is "do-able"...

I don't agree with that, and neither do I agree with the "take the risk, life is a gamble and mine went well" attitude. But some do do very well from taking the risk. Like you say though, when that risk goes wrong, they get lambasted as idiots.

I suppose that's because many of us have paid that in the past. Personally I wouldn't advise someone to take a 5x mortgage at 2.85%. £26k would give you a take home pay of £1731 a month a £130k mortgage at 2.85% is £611 a month leaving £1120 a month which is OK. But if rates rise to 6% the mortgage £847 which would be more difficult I think I could live on that but I'm sure many people wouldn't be able to.

ukcarper

lisyloo wrote: »

Does "do-able" mean stretching yourself and not able to fund a pension properly?
I'd be ok with that short term if I had a reasonably good chance of career increases e.g. Doctor, dentist etc.
Otherwise I think it's sensible to make provision for pension contributions, insurance and reasonable levels of contingency.

I think 50% is ok if you're prepared to tighten your belt a bit.

The only think I would say is that could be better to enter your retirement owning your own home compared to renting and a reasonable pension could easily be taken by rent.

[Deleted User]

danothy wrote: »

My friend can't afford to borrow that much on £26k.



My friend earns £26k outside of London.

I was trying to refer to the 'nicer' houses.. no one expects to start off with a 3 bed semi - there are plenty of other cheaper 2 bed terraces well within the price range of someone on that salary.

For our 'starter home' we had to stretch to £200k for a 2 bed terrace - but that's the fun of the south east. I was earning £27k at the time, wife was on about about £25k.

chucknorris

Graham_Devon wrote: »

This has been raised a few times before now, and it appears 40-50% is what some appear to suggest is "do-able"...

I don't agree with that, and neither do I agree with the "take the risk, life is a gamble and mine went well" attitude. But some do do very well from taking the risk. Like you say though, when that risk goes wrong, they get lambasted as idiots.

I'd say it is ok to do it, if someone is capable of assessing the risk and potential gain, and they are comfortable taking the risk, in which case they probably wouldn't be asking, they would simply do it. But if someone can't appreciate the potential risk and gain, and has to ask, then they probably shouldn't do it.