The dissapearing property ladder

westernpromise

Loughton_Monkey wrote: »

Goats and Monkeys!

That's for individuals to decide. They can be single or dual income. They can be in secure jobs or temping. They can have no children or 5 chidren. They can have car payments of £600 a month or they can use the bus!

Rates will go up. Do you see them coming down?

Everyone has different incomes and circumstances. Whatever they are, just to pick figures out of the air, 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!

To ask "what about if the rate goes up" is like being offered a £40K pay rise to do a different job for which you need a car, and waffling on about "what happens if I get a puncture....?"

I need a gin & tonic!

Whenever I see a thread like this, I always point the crashies to the old uk.finance newsgroup, that can now be found under Google Groups. As long ago as 1996, there were crashtrolls on there explaining how the market was about to crash another 90% and renting was the smart thing to do. As early as 1997, there were crashtrolls on there insisting that 6 months of Halifax price rises were too few to say the market had turned around. And as early as 2001, there were crashtrolls on there insisting that current prices were unsustainable.

Here's a discussion from 2001, for example.

https://groups.google.com/forum/#!searchin/uk.finance/"richard$20faulkner"$201996|sort:date/uk.finance/Q0FBOtMI1Hw/Ed70RsfcJQUJ

An estate agent remarked:
Had I rented rather than bought, I would not have seen total increase of £158,000 in 15 years. Owning has always been cheaper than renting the equivalent property, so it's been free money as far as I'm concerned, and there is no way in the world that I could have used any other vehicle to generate this kind of equity.

It isnt guaranteed but it has been happening for the best part of 40 years and there does not seem to be any economic reason why it should not continue.

The reply to this from a scaredy crash troll was:
I'd prefer not do be buying now, particularly since I'm going to be working near Oxford. Oxford itself is just insane, e.g. a two-bedroom flat in north Oxford for 210k (vs about 80k here in Lancaster for one with a much better view).

Can you believe that? He thinks £210k is "insane" because unlike vibrant cosmopolitan Lancaster, there isn't even a nice view! He goes on:

That 210k flat in Oxford is IMO not worth the money in itself, and I don't expect to find a greater fool to take it off my hands in ten years' time for 500k (a mere 30 times a starting academic's salary).

And of course the crash troll scaredy cat was exactly wrong. The estate agent predicted that he would be, in his reply:
...there will be someone who will pay £500K for your £250K property in 10/15 yrs, because it will be the norm.

And the crashtroll then trotted out all the stuff we are still hearing:
IMO the situation is simply not stable....To suggest that prices could rise faster than wages over a number of years in places like that is just absurd...people will rapidly come to the conclusion that paying a quarter of a million pounds, let alone half a million, for a fairly small flat is not sensible...

This idea that property buying should somehow be made both riskless and cheap seems to be a very new idea. I'd never heard it before I started hearing it from Generation Rent.

Out,_Vile_Jelly

I thought paying 40-50% of your net salary on rent/mortgage was quite normal in London? For those of us on non-banker salaries that is.

westernpromise

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.

My first London mortgage was 50-odd % of my take home and it rose to 94%.

I have nil sympathy with anyone who now complains about having to spend as much as 30% on their mortgage. In 1988 we didn't have 10 year fixes on offer, and we didn't have a choice of 27 other countries we could go and try working in. We also expected buying to involve sacrifices, which seems to be an alien concept to aspiring FTBs today.

wotsthat

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.

The current ratio of mortgage payment to income is quite low but it's not typical. It does appear that people used to be willing to plough a bigger % of their income into a mortgage than they are today. Maybe that's what makes them homeowners.

Sometimes there's a indignation about a made up example of a postman (it's always a postman) in the '70's or '80's being able to buy at 25 but today's postman can't. Maybe the postman of yesterday was simply willing to commit more of his income towards home ownership and had access to the finance to do so.

lisyloo

I take your point carper, having a house in retirement is great, but people also need money ( over and above state pension) to live on if they don't want to be on the breadline, plus at some point there will be maintenance required on the home.
It's very expensive to build a decent pension pot today if you don't have a defined benefits scheme, so owning a house is great but it's not a substitute for a pension. If it's a sacrifice for a couple of years to get a footholds then that's an acceptable sacrifice in my view, but if you don't start it's really easy to put off, whereas If you start putting money into a pension you don't miss it.
Anecdotally I do know people who didn't join the works scheme and put it off. 20 years later they still hadn't done it.

I thinks wotsthat is also right to that expectations and attitudes were different then. In past if someone didn't have enough, they'd look for a second job or work at weekends and make sacrifices, whereas now people want 3 holidays and a spa weekend for me time (ok I'm exaggerating but I think there is a difference).

In my view if you're not a sophisticated investor the best two things you can do is get a repayment mortgage and a pension.
I've found that whatever I pay in, I simply don't miss and it's a mathematical certainty to rise over 25 years or more, so it can't fail.

westernpromise

danothy wrote: »

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.

Why do you expect that? Who do you think should organise this for you? Who in the past has ever benefited from such an arrangement?

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.

Can you clarify this? I am not sure I follow your question. If you're saying what's a reasonable amount of your net income to spend on housing yourself in a property that you own, then this is a personal choice. It was my priority to the point that I did without almost literally anything else. If you want 75% of your income to remain disposable to squander on luxuries, then you are constructively saying that you do not want to own property enough to give up anything to do so. You can't then complain about the fact that others do own property.

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

And that's part of your problem right there. Previous generations had it far, far worse than the current crop of 20-somethings. Yet a vociferous minority of the latter spends a great deal of effort vilifying those generations for supposedly having had it easy, with no idea of the facts; and then wonders why nobody sympathises with them. We did not have it easy, today's 20 somethings do, and yet they still complain. I have little sympathy.

Is there some assertion here that it is reasonable to pay those levels of income on a mortgage?

Reasonable doesn't come into it. You buy somewhere, you take a capital risk. I did so, I paid my dues and now I expect to keep the proceeds.

You have no idea what I do and do not resent in this world

It's all there between the lines.

westernpromise

wotsthat wrote: »

The current ratio of mortgage payment to income is quite low but it's not typical. It does appear that people used to be willing to plough a bigger % of their income into a mortgage than they are today. Maybe that's what makes them homeowners.

Bingo. This.

It was common in the 1970s and 1980s for people to spend 50 to 60% of their income on their mortgage. To do so today provokes shrieks of outrage from Generation Rent.

ukcarper

lisyloo wrote: »

I take your point carper, having a house in retirement is great, but people also need money ( over and above state pension) to live on if they don't want to be on the breadline, plus at some point there will be maintenance required on the home.
It's very expensive to build a decent pension pot today if you don't have a defined benefits scheme, so owning a house is great but it's not a substitute for a pension. If it's a sacrifice for a couple of years to get a footholds then that's an acceptable sacrifice in my view, but if you don't start it's really easy to put off, whereas If you start putting money into a pension you don't miss it.
Anecdotally I do know people who didn't join the works scheme and put it off. 20 years later they still hadn't done it.

I thinks wotsthat is also right to that expectations and attitudes were different then. In past if someone didn't have enough, they'd look for a second job or work at weekends and make sacrifices, whereas now people want 3 holidays and a spa weekend for me time (ok I'm exaggerating but I think there is a difference).

In my view if you're not a sophisticated investor the best two things you can do is get a repayment mortgage and a pension.
I've found that whatever I pay in, I simply don't miss and it's a mathematical certainty to rise over 25 years or more, so it can't fail.

I'd agree with all that it's a balancing act I have a reasonable final salary pension but the rent for a property like mine is more than the pension.

danothy

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.

According to listentotaxman.com £26k with a student loan repayment and a 6.5% pension contribution would leave you with just over £1.5k a month net, so if you were looking at borrowing £130k (5 x £26k) and presumably having a 10% deposit you should be left with just under £145k to buy a house.

A 4.85% interest rate would mean repayments of £750 a month on such a loan, so 50% of your net income or about 35% of your gross. I'm not saying it's not reasonable, but it does seem to me to be well above the proportions that are suggested elsewhere and not even at a particularly high interest rate.

Of course to achieve anything less than 50% of your net you'd either need lower rates or to borrow less. No point borrowing less if you can't get a house for less, and achievable mortgage rates are anyone's guess. If you can't really push it beyond 50% of your net on £26k then you'd have to be confident that the interest rate wouldn't go above 4.85% or your income wouldn't drop after taking out a five times income loan. Stating it like that makes it sounds more like the limit, rather than a reasonable starting point to me, but I'm open to other arguments.

danothy

westernpromise wrote: »

I have nil sympathy

No-one has asked for any.

westernpromise wrote: »

Why do you expect that?

Because if it is held that it is reasonable to pay some percentage of your income on a mortgage and it is advocated that you have to spend more on a mortgage than what is held to be reasonable then there is a problem.

westernpromise wrote: »

Who do you think should organise this for you? Who in the past has ever benefited from such an arrangement?

All it requires is that people like yourself acknowledge that it is not affordable if the amount you have to spend is not reasonable. The people who will benefit from this are those who are not criticised by you for not spending more than is reasonable.

westernpromise wrote: »

I am not sure I follow your question.

This is apparent.

westernpromise wrote: »

If you're saying what's a reasonable amount of your net income to spend on housing yourself in a property that you own, then this is a personal choice.

I am not. I am asking what is a reasonable proportion to spend on a mortgage according to the people giving examples of houses that someone on a giving income should be able to buy in their view.

westernpromise wrote: »

I did without almost literally anything else.

And you apparently had the riches to cover your living costs when your income didn't.

westernpromise wrote: »

You can't then complain about the fact that others do own property.

I have not complained about this.

westernpromise wrote: »

And that's part of your problem right there.

I do not have a problem in this regard.

westernpromise wrote: »

I have little sympathy.

Your sympathy level appears to have increased.

westernpromise wrote: »

Reasonable doesn't come into it.

It is only about what is reasonable. If you cannot afford something, then you cannot afford something. No amount of telling people to afford something will make them afford something they cannot.

westernpromise wrote: »

It's all there between the lines.

It really is. You appear to be angry with me over the fact that you have had to pay most of your income on your mortgage at one point and use savings to cover living costs. This was not my doing. You also appear angry with me for suggesting that it is not reasonable to expect someone else to do this too.