Renting in your 40's and staring into the abyss

Loughton_Monkey

GunJack wrote: »

not much point in comparing 2% wage growth with 2.9% hpi, especially 2% of, say £27k ave salary is always be so much less than 2.9% of £190k ave house price....

What you're doing here is knocking the facts Hamish posted up to agree with your own views that people cannot rely on wage growth to keep up with HPI. That's why he is saying (as I always do) that buying early in life is the best strategy.

GunJack wrote: »

..and as for "huge rise" in min wage, whoop whoop, £20-ish a week before tax NI and pension...still ain't gonna dent the massive deposit you'll need to try and buy a house.........

For those of us who read the post, we understood the words "further up the scale". You are personally looking at the rather weird concept of the person literally at the bottom of the wage earning scale buying a house. If you wait for an economy in which the lowest paid worker in the whole nation can afford to buy a house, you will wait a lifetime. It "ain't gonna" happen.

Hamish was specifically referring to the obvious fact that a big rise in MW will trickle up so that for a while, decent wage earners (and potential house buyers) can perhaps look forward to more than the long term average of 2% above inflation.

GunJack

LM, before I reply, I'm not being shirty....

1. wasn't disputing hamish's facts
2. neither am I disputing buying earlier is best
3. I hope he's right about the trickle-up effect
4. there are areas where a couple, both on min wage, could afford to buy IF they had a decent deposit, so what's wrong with low earners buying? I'm confused by your stance that it couldn't/shouldn't happen...

ukcarper

dktreesea wrote: »

True, but only if interest rates remain at the current rate throughout the life of the mortgage. It probably is sensible, if you are having a mortgage for 25 years and are trying to work out affordability, to factor in the cost of that mortgage at the long term average for interest rates, as opposed to the ridiculously low interest rates available at the moment.

What is the long term average mortgage rate I mean mortgage rate I believe the average is now about 3.5%

Cornucopia

dktreesea wrote: »

True, but only if interest rates remain at the current rate throughout the life of the mortgage. It probably is sensible, if you are having a mortgage for 25 years and are trying to work out affordability, to factor in the cost of that mortgage at the long term average for interest rates, as opposed to the ridiculously low interest rates available at the moment.

Yes, although you can obviously hedge against that with long-term fixed rates. I certainly wouldn't say that interest rate rises are related in any way to salary rises.

wotsthat

dktreesea wrote: »

True, but only if interest rates remain at the current rate throughout the life of the mortgage. It probably is sensible, if you are having a mortgage for 25 years and are trying to work out affordability, to factor in the cost of that mortgage at the long term average for interest rates, as opposed to the ridiculously low interest rates available at the moment.

The MMR requirements will do that anyway won't they?

I thought mortgage applications were stress tested at +3% so if she can get the current average of 3.5% then she'll be stress tested to 6.5%.

I expect that's above the long term average mortgage rate already. I know in the last 21 years I've averaged 5.14%.

It might be important to note that although rates are low it's not solely a function of the GFC. Interest rates had been on a downwards trajectory for many years before. My peak mortgage rate was 8.95% in 1998 and fell almost continuously.

If Fiona can get a mortgage I'd suggest she's financially robust enough to deal with whatever interest rates might do in the next 5 years without having to build in too many additional safety margins.

As has been commented upon life is always going to be difficult for anyone arriving in their mid forties and deciding buying a house is now a priority when it wasn't before.

dktreesea

HAMISH_MCTAVISH wrote: »

Wages are currently rising significantly faster than inflation.

And with the huge rise in minimum wage scheduled between now and 2020, and the corresponding effect that will have for most people further up the scale, this trend looks likely to continue for the foreseeable future.



In most areas that has never been the case for anything other than very short periods of time.

The long term growth in house prices is inflation plus 2.9%.

The long term growth in wages is inflation plus 2%.

House prices have grown faster than wages for most of the last 5 decades.

The best bet for most people has been to buy a house as early as possible and spend as little of your lifetime earnings as possible buying a house for a landlord.

That remains the case today.

Some wages are rising faster than inflation. But the trickle up effect? Maybe in the past, but in an age where graduates are two a penny, skilled workers are flooding into the UK? Even in the public sector, I just don't believe, over the longer term, that wage, including for those in the education sector where Fiona works will even keep up with inflation, let alone grow at inflation plus 2%. Look at teachers. The government is trying to pay them 1% p.a. over the next few years, and then only to those on the minimum wage level for their band. There's a shift to performance pay, so it is conceivable that many teachers won't even get that, not because they are not good teachers but because it is a way of avoiding paying people an inflation busting rise.


You think the rise in the minimum wage will push wages at a higher level up? I'm not so sure. A lot of employers, thinking the minimum wage is reasonably generous anyway, might just replace their staff over time with minimum wage earners.


Plus the main factors influencing wages, at least in the private sector, and house prices, i.e. supply and demand, are running opposite each other. We grow our population by around 400,000 to 500,000 people a year. Do you see this falling in the coming years? I don't, not with a pull factor of a minimum wage rising to a level that will make it amongst the highest in Europe. The over supply of labour will push wages down across the board. Look at the I.T. industry. Contract positions in 1985 in the speciality I worked in, went for around £600 to £900 a day. Roll on 30 years, and £300 a day for the same sort of work is regarded as a good rate.


That same population rise, especially down south, where most of it occurs, has the opposite effect on both rents and house prices, both way outstripping inflation, a trend that could even accelerate in commuter belt cities like Colchester, let alone trundle along at 2.9% per annum plus inflation.


Yes, surely a reason to bite the bullet and buy as well as you can afford right now. But at the same time, I can understand someone looking at a £200k mortgage ( as opposed to a £50k mortgage 20 years ago) and worrying about how, if their salaries don't grow, not to mention in the current climate of job insecurity, especially for those in the public sector, they would cope paying it if they suffered a loss of income. Or didn't even grow their income in real terms. What happens if there's an interest rate rise?

dktreesea

wotsthat wrote: »

As has been commented upon life is always going to be difficult for anyone arriving in their mid forties and deciding buying a house is now a priority when it wasn't before.

This becomes an even bigger problem when the government subsidises landlords, via a ridiculous housing benefit policy, pushing rents up far too high across the board.


Working people need affordable accommodation, preferably without recourse to the benefits system. I have never lived in a country - and I've lived in quite a few - where so many working people needed a top up from other taxpayers just to be able to afford to live, never mind thrive.


I don't expect everyone to be able to afford to buy a house, but I do expect, especially for those in essential services, like teachers, police, NHS workers etc, that they should have access to decent housing at a price they can afford. Bribing private individuals to provide that housing, and hoping they all do the right thing, investing the subsidy into their housing stock rather than just letting it deteriorate, is a bit mad, imho.


In our street, rents for two bedroom flats, two bedroom mind you, have now crested the £1000 a month mark. How much is reasonable to spend on accommodation? If it's just a quarter of your gross income, then £1,000 a month should be affordable to people with household incomes of £48k a year. Instead we have neighbours on around £22k a year shelling out half their income on rent.


Yes, their solution is to save up and buy a place. But how can they do that when rent takes up over half their income? £1,000 a month for a two bedroom part in a nice-ish part of Edinburgh is seen as quite reasonable. One of them is trying to get a housing association flat to rent at a mid market rent. But it's still £768 a month plus some kind of monthly fee that is payable when you rent that kind of property.

lisyloo

Look at the I.T. industry. Contract positions in 1985 in the speciality I worked in, went for around £600 to £900 a day. Roll on 30 years, and £300 a day for the same sort of work is regarded as a good rate.

I'm a permanent employee.
No payrise for 5 years (and even then they were around 1%-2%, no promotion for for 12). For some of my colleagues it's been 10 years without a payrise.
This is not just my company as I can obviously look at job ads.
Senior Software engineer jobs have generally been around £45K-£50K for the last 10 years. There are exceptions in London but the top jobs also require 80 hours per week.
My department is now 85% in Bangalore - not many jobs for youngsters here in the UK.

We are now not getting payrises ever. We are getting bonuses instead which about half the time are zero because we don't meet the targets.

I'm not complaining because I'm lucky to be already senior and on a decent salary.
It's just an anecdote to demostrate that in some sectors pay isn't rising and in many cases going down in real terms and sometimes (contractors) nominal terms.

wotsthat

dktreesea wrote: »

This becomes an even bigger problem when the government subsidises landlords, via a ridiculous housing benefit policy, pushing rents up far too high across the board.

Working people need affordable accommodation, preferably without recourse to the benefits system. I have never lived in a country - and I've lived in quite a few - where so many working people needed a top up from other taxpayers just to be able to afford to live, never mind thrive.

I don't expect everyone to be able to afford to buy a house, but I do expect, especially for those in essential services, like teachers, police, NHS workers etc, that they should have access to decent housing at a price they can afford. Bribing private individuals to provide that housing, and hoping they all do the right thing, investing the subsidy into their housing stock rather than just letting it deteriorate, is a bit mad, imho.

In our street, rents for two bedroom flats, two bedroom mind you, have now crested the £1000 a month mark. How much is reasonable to spend on accommodation? If it's just a quarter of your gross income, then £1,000 a month should be affordable to people with household incomes of £48k a year. Instead we have neighbours on around £22k a year shelling out half their income on rent.

Yes, their solution is to save up and buy a place. But how can they do that when rent takes up over half their income? £1,000 a month for a two bedroom part in a nice-ish part of Edinburgh is seen as quite reasonable. One of them is trying to get a housing association flat to rent at a mid market rent. But it's still £768 a month plus some kind of monthly fee that is payable when you rent that kind of property.

Fiona is the wrong pin up girl for the problems you highlight.

Almost every priority she's set herself in life has been achieved.

She wanted to be highly qualified - tick - no student loans either.

She wanted to travel - tick

She didn't want to enter the jobs market in her twenties - tick

She wanted to work in academia - tick

She wanted three children - tick

She didn't want to save - tick

I'm sympathetic to the idea that houses are expensive and renting is generally considered crap and I'm sorry she seems to have a complex about being a renter but when did reality strike? Could she really have got to her mid-forties and found this a surprise?

I'm a similar age to her, from a much poorer background, same number of kids, nearly as well qualified, I've travelled the world, and, without setting the world alight in any way of note find myself owning a house.

lisyloo

I've just had a good experience of renting.
My circumstances are not the same as Fiona's - a major difference is that I chose not to have kids (just emphasising that her circumstances are entirely her choice).
We paid no fees and got our deposit back in full on the day of moving out (we have been excellent tenants).
I don't have any complex about renting. nobody I know professionally or personally looks down on me.

One anedote, but I just wanted to add some balance to this idea that renting is universally awful.