The dissapearing property ladder

ukcarper

danothy wrote: »

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.

A lot depends if they are single, part of couple or have children.

danothy

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.

There's a graph here of mortgage payments as a percentage of take home for first time buyers. It has the accompanying comment:

the mortgage payments are still taking up a big % of take home pay – despite the low interest rates

Incidentally, what would you say is reasonable to commit to in terms of proportion of net income? (Sort of having trouble pinning people down on that one). Personally, given the seeming inevitability of rates rising, the idea that 50% is more like an upper limit and not a particularly good point to start at seems more rational to me.

ukcarper

danothy wrote: »

There's a graph here of mortgage payments as a percentage of take home for first time buyers. It has the accompanying comment:


Incidentally, what would you say is reasonable to commit to in terms of proportion of net income? (Sort of having trouble pinning people down on that one). Personally, given the seeming inevitability of rates rising, the idea that 50% is more like an upper limit and not a particularly good point to start at seems more rational to me.

I don't think it is as simple as a percentage the more you earn the more you will have left after that percentage. It's down to what you can live on and what you are prepared to do without that is very personal.

lisyloo

6.5% pension contribution is pretty small.
Public sector schemes are reckoned to be at least 25% and with falling annuity rates and longevity possibly up to 35%.
Ok to start with maybe but it's not going to give you a great pension.

There are many other factors, the most significant would be children and whether you have 2 incomes or 1.
Other factors might be unavoidable commuting costs, pets, smoking.
You could say pets are voluntary but it would be very harsh to say children are a lifestyle choice (I don't have kids myself but I consider it a basic right not a lifestyle choice).

Blacklight

ukcarper wrote: »

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.

It's just common sense is it not, to buy your own place so you don't have to worry about housing when you retire. What's the point of renting and saving for retirement?

I'd rather semi retire in my 50's and carry on working a little here and there into my 70's. Best of both worlds without ever having to worry about your home being taken away.

lisyloo

buying makes sense if you're planning to stay on one place.

I'm renting somewhere because I don't expect to be here (in London) for long enough for it to make sense to buy.
Another reason would be can't afford it.
A third reason would if you wanted to invest the money in a business.

So there are a few reasons to rent. Makes sense for the majority.

[Deleted User]

lisyloo wrote: »

buying makes sense if you're planning to stay on one place.

I'm renting somewhere because I don't expect to be here (in London) for long enough for it to make sense to buy.
Another reason would be can't afford it.
A third reason would if you wanted to invest the money in a business.

So there are a few reasons to rent. Makes sense for the majority.

Unfortunately, if you want to (finally) live somewhere that the rate of house price inflation has gone beyond salary inflation, you'll find that renting will erode your chances of ever 'settling down'.

wotsthat

danothy wrote: »

Incidentally, what would you say is reasonable to commit to in terms of proportion of net income? (Sort of having trouble pinning people down on that one). Personally, given the seeming inevitability of rates rising, the idea that 50% is more like an upper limit and not a particularly good point to start at seems more rational to me.

I'm risk averse so 50% sounds like a lot to me and I've never been near it. In practical terms that translates to living in a smaller house than I could otherwise afford (although buying at the cheapest time ever helped). However, if the choice was 50% of income on a mortgage or never owning I know what I'd do.

For people like my working class parents buying in the '70's I doubt they could've bought unless they were willing to sink 50% of their income into mortgage payments and they'd now be renting in retirement.

makeitstop

ukcarper wrote: »

So you think young people are not facing a job problem. I was earning more than average earnings by the time I was 22 that was without a degree how many 22 year olds are doing that now.

This is entirely relevant to where exactly in the UK we are talking about though. I can recall what things were like in the employment market here in South Wales 25 to 30 years ago, and yes, while there may have been more by the way of employment opportunity, wages were not massive compared to where they are today.

There has, over the last decade, been a squeeze on wages to some extent yes but house prices have without question risen disproportionately when contrasted against wage increases within the same time frame.

danothy

wotsthat wrote: »

I'm risk averse so 50% sounds like a lot to me and I've never been near it. In practical terms that translates to living in a smaller house than I could otherwise afford (although buying at the cheapest time ever helped). However, if the choice was 50% of income on a mortgage or never owning I know what I'd do.

Personally, as someone wanting to buy at not the cheapest time, I am inclined to agree with the risk adversity and the possible necessity of possibly going to 50%.

wotsthat wrote: »

For people like my working class parents buying in the '70's I doubt they could've bought unless they were willing to sink 50% of their income into mortgage payments and they'd now be renting in retirement.

Indeed. My friend, whose circumstances differ from mine somewhat, I fear is limited in options though, as costs make that 50% look more like a starting point (with decreasing affordability seeming inevitable) and little option to reduce the costs due to lack of availability.