Just a thought

Generali

The thing is it's a bit more complex than just looking at the data for house prices and gross incomes. The way that we spend our incomes has changed hugely over the last few decades.

Hopefully this link will work:

http://www.ons.gov.uk/ons/rel/social-trends-rd/social-trends/social-trends-40/social-trends-40---expenditure-chapter.pdf

If you go to table 6.2 on page 2 then you can see how people spend their money in 2008 vs 1970 and there are several differences that are quite marked.

For example, the average household in 1970 was spending 21% of their net income on food, in 2008 that was 8%. Alcohol and tobacco spending, despite all the catastrophic newspaper articles about Binge Drinking Britain, has fallen from 8% of income to 3% for the average household. Spending on clothing and footwear has halved from 10% to 5% of household spending.

On the other side of the ledger, spending on housing and transport have risen but I would argue that spending on those things has risen in part because people can afford to spend a larger proportion of income on them as spending on other things has fallen. For transport, a large part of the rise is probably linked to the price of oil being a lot higher today than in 1970, prior to the oil shocks of 1974 and 1979.

This isn't even adjusted for quality. If you take a house in 1970 then it was unlikely to be well insulated, unlikely to have double glazing even. There was a reasonable chance that it didn't have central heating. Now it's pretty tough to find a house without those things. Even the crappiest rentals have central heating today.

The quality of food has risen unrecognisably from my recollections of the 1970s, especially in winter as it has become so much easier to import food.

Generali

marathonic wrote: »

We're 55 years away!!!

Are you posting from the 2020s?

ukcarper

Generali wrote: »

The thing is it's a bit more complex than just looking at the data for house prices and gross incomes. The way that we spend our incomes has changed hugely over the last few decades.

Hopefully this link will work:

http://www.ons.gov.uk/ons/rel/social-trends-rd/social-trends/social-trends-40/social-trends-40---expenditure-chapter.pdf

If you go to table 6.2 on page 2 then you can see how people spend their money in 2008 vs 1970 and there are several differences that are quite marked.

For example, the average household in 1970 was spending 21% of their net income on food, in 2008 that was 8%. Alcohol and tobacco spending, despite all the catastrophic newspaper articles about Binge Drinking Britain, has fallen from 8% of income to 3% for the average household. Spending on clothing and footwear has halved from 10% to 5% of household spending.

On the other side of the ledger, spending on housing and transport have risen but I would argue that spending on those things has risen in part because people can afford to spend a larger proportion of income on them as spending on other things has fallen. For transport, a large part of the rise is probably linked to the price of oil being a lot higher today than in 1970, prior to the oil shocks of 1974 and 1979.

This isn't even adjusted for quality. If you take a house in 1970 then it was unlikely to be well insulated, unlikely to have double glazing even. There was a reasonable chance that it didn't have central heating. Now it's pretty tough to find a house without those things. Even the crappiest rentals have central heating today.

The quality of food has risen unrecognisably from my recollections of the 1970s, especially in winter as it has become so much easier to import food.

I bought a new house in the 70s and the difference to now is considerable, no double glazing, no carpets, no central heating, no lawns and no incentives.

As for food the variation and availability is much better but I'm not so sure about the quality.

PasturesNew

As a single female, getting a mortgage was always a drudge. Even in 1999/2000 when I went into an estate agency to go on their books (no Internet to look for yourself, you had to sign up and wait for them to send you the details of houses they thought you'd like!) - the agent was a Director/partner of the firm and was serious when he said to me "Of course lenders don't like lending to single women".

shortchanged_2

It just shows really how indebted we have become as a society. We keep hearing we'll never see those rates again and I doubt we'll see them in my lifetime but it is worrying when many people would struggle with rates even half of those these days with the size of their mortgages.

SkyeKnight

marathonic wrote: »

http://www.thehanley.co.uk/standard-variable-interest-rate-history_297.html

They show their rates since April 1987 so you'll get a rough idea of what people may have paid from the 9th year of their mortgage onwards.

The majority of their mortgage would still have been outstanding at that point because, at those rates, the capital paydown is significantly lower than that at todays rates.

In the earlier part of the 80's, they were a good bit higher than the starting rate of 12% shown above.

At a rate of 15%, a 2*salary mortgage would take 30% of your salary to repay the interest alone.

Banks tend to lend an absolute maximum of 5 times salary at the moment.

For someone earning £30,000 and getting a 5 year fixed rate mortgage of £150,000 at 90% LTV (3.5%) with a 25 year term, the annual repayments equate to £9,000.

As you can see, although a current buyer has a salary multiple of 5 instead of 2, 30% of their salary pays the whole mortgage, not just the interest as was the case in the early 80's.

Also worth noting is that income tax in 1978 was at a basic rate of 33% and a top rate of 83%. :eek:

This comparison is very biased. For a start, if you save up half your salary as a deposit that is 10% now, but 25% on the past mortgage. Also, on that link you provide the current SVR is 5.19%, not 3.5% (a rate that I'm not sure is even available to first time buyers with 10% deposit).

In 1978 the Base Rate varied between 6.5% and 12.5%. It varied a lot in the following years (as high as 17% briefly) but on average over 25 years would have been well under 10%. 1978 was low compared to the following years, however, I suspect the same will be said in the future about 2015. If you are comparing 1978 to 2015 then compare those two years - not some random higher interest rate that happened later.

The main difference is though, that whilst mortgage rates were in double figures, raises in wages were also in double figures too. That means my parents got an almost unaffordable mortgage in the late 1960, but 5 years later the payments had more than halved and they could afford to have children. The whole thing was paid off in less than 10 years!!

wotsthat

shortchanged wrote: »

It just shows really how indebted we have become as a society. We keep hearing we'll never see those rates again and I doubt we'll see them in my lifetime but it is worrying when many people would struggle with rates even half of those these days with the size of their mortgages.

Why worry too much about something even you think is unlikely to happen in your lifetime? You may as well worry about how reliant we've become on hospitals and how we'd struggle if the number of them halved.

We can see from Generali's post just how spending habits have changed. They'll change again in reaction to costs, availability etc. - an awful lot of the cpi basket of goods consist of fripperies and stuff that no sensible person would prioritise when faced with increasing housing costs.

Generali

wotsthat wrote: »

Why worry too much about something even you think is unlikely to happen in your lifetime? You may as well worry about how reliant we've become on hospitals and how we'd struggle if the number of them halved.

We can see from Generali's post just how spending habits have changed. They'll change again in reaction to costs, availability etc. - an awful lot of the cpi basket of goods consist of fripperies and stuff that no sensible person would prioritise when faced with increasing housing costs.

A great example from that even from the very macro numbers I looked at is that the proportion of income spent on foreign holidays has gone up 4x!

danothy

Generali wrote: »

A great example from that even from the very macro numbers I looked at is that the proportion of income spent on foreign holidays has gone up 4x!

I think the only thing that would settle many of the debates on this board would be the breakdown of spending habits for first time buyers over the five to ten years leading up to their purchase, and how that compares to the same sets of people from yesteryear.

wotsthat

Generali wrote: »

A great example from that even from the very macro numbers I looked at is that the proportion of income spent on foreign holidays has gone up 4x!

Or at a household level take satellite TV. Satellites aren't floating around the Earth on the off-chance someone might want to watch Eastenders - a business has gambled that a) people can afford it and b) they've a better chance of extracting people's increased wealth than another product or service.

I keep seeing articles about the male grooming market in Grocer magazine. I can't remember the exact numbers but the average man now spends about £650 each year in a category that used to be tiny and consisted of not much more than Old Spice and Brut. It's a category developed only because people have the cash to spend. It's brilliant marketing - first convince people they stink and are unattractive to the opposite sex and then provide a solution to rectify this. It's a surprise any of us are here given how repellent our parents must have found each other before Lynx deodorant.