Just a thought

Generali

danothy wrote: »

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.

My point really is that it is far more complex than saying that 'people spend too much on iPhones' or 'houses have gone up more than average incomes' or whatever.

Basic economic theory tells us that as incomes rise and relative prices change people will buy more of one thing and less of another. Electronics have gotten cheaper and better and so people buy more of them.

wotsthat

Generali wrote: »

My point really is that it is far more complex than saying that 'people spend too much on iPhones' or 'houses have gone up more than average incomes' or whatever.

It is complex. I've paid a mortgage rate of 9% (ish) and 2% (ish).

It would be an over simplification to say that if rates suddenly went up I'd spend less on something else instead because, at 9%, I'd cut spending further to make overpayments as well. At 2% I really don't want to make any capital payments and might buy an iPhone with the interest savings and divert capital to a pension.

danothy

Generali wrote: »

My point really is that it is far more complex than saying that 'people spend too much on iPhones' or 'houses have gone up more than average incomes' or whatever.

Basic economic theory tells us that as incomes rise and relative prices change people will buy more of one thing and less of another. Electronics have gotten cheaper and better and so people buy more of them.

Indeed. Spending 50% of your income on housing might just reflect how valuable shelter fundamentally is in comparison to everything else you can spend your money on. The fact that it hasn't been so in the past makes me wonder why it wasn't so valuable, but only for a second.

ffacoffipawb

chewmylegoff wrote: »

You may not be aware of this, but it isn't the 70s anymore and it isn't ever going to be the 70s again.

Has anybody told Jeremy Corbyn?

ukcarper

Pobby wrote: »

Selling a house in Reading in 1978 went for a touch under £11,000. Not a flat, a 3 bedroom semi, front and back garden in a quiet road.

I have read that the average salary was £5,440.25 per annum. I was on a little bit more and I think my wife was on slightly less. Both mid to late 20 year olds.

Just recently, one has sold for £250,000. I see that the average salary is around £25,000. Now assuming, if I had been a single person on the average at that time would equate rather nicely to 2 times my salary. Rather affordable.

Now at the average salary, I am going to be looking at 10 times my salary. Note the house was my first buy in 1975 for £10,000. Total household income about £3,000 per year.

Any thoughts other than the lack of housing, which agreed adds to the problem but not , as I understand as the main cause.

Out of interest I put £5500 into measuring worth website for 1978 and that corresponds to £41,600 now so I'm not sure where you got your average earning figure.

ukcarper

SkyeKnight wrote: »

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!!

You make a couple of valid points the deposit is higher in relation to earnings and inflation did reduce cost of loan in relation to earnings. But increasing interest rates nullifies it somewhat and inflation creates other problems and earnings lagged inflation.

According to nationwide the earnings to house price ratio is 5.5 compared to long term average of 4.2 about 0.5 higher than past peaks. So yes prices are high and it is very difficult to buy but not by as much as people try to make out.

chewmylegoff

danothy wrote: »

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.

In 40 years this board will be full of people saying back in their day all they had was a new iPhone, iPad and 4k TV every 12 months - everything else was saved towards the house deposit and no one wasted all their money on teleporters, robotic llamas and trips to the moon like the yoof of 2055.