Has Crashy and co finally come to their senses...

chucknorris

economic wrote: »

How do you know btl folk have had such a big impact on prices? I heard somewhere that by far the majority of the demand is from ftb and people moving up or down the ladder. Btl is a small part even in London.

I don't think that BTL is only a small part of London's housing market, I can't remember the figures, but I think cells had it at about 40% (it might have been 40% of the market excluding social housing).

wotsthat

kilby_007 wrote: »

My parents were earning around the average salary when they bought. My mum was a waitress and my dad did a 9-5 warehouse job. The average salary now wouldn't buy you an average family home. I'm on around 3x the average salary, ergo 20 years ago I would've had at least 2/3 of my salary as disposable income. It's not fanciful at all.

Yes, we hear a lot about posties and bin men buying in London too in the good old days. It's an urban myth - if houses were so cheap then and so expensive now more people would have owned.

A waitress and a warehouse man 20 years ago - just how much of their take home pay did they have to stump up towards the mortgage? Where was it?

westernpromise

kilby_007 wrote: »

the "many people who can afford current prices" aren't the average cross section of society that it was 20 years ago

It never was an average cross section that bought houses, and 20 years was the absolute bottom of an epic price slump anyway. Since then London has recovered strongly, the sticks rather less so, but 1996 was no more the "right" price than today's price.

There is another factor persistently omitted from these hankerings after the prices of the past. A permanent and structural change of household make-up took root in the 1960s and was recognised in Lawson's tax reforms of 1988. Briefly, prior to that date a married woman had no personal tax allowance. Instead her husband had a larger allowance (whether she earned or not). If she did earn, her entire earnings were taxed at his marginal rate. In the 1970s that could mean a secretary or shop assistant paying 83% on every penny she earned if she happened to be married to a man whose earnings stood just short of the 1970s top rate.

That's an extreme case but it existed. It describes my parents, for example; a senior accountant married to a former secretary. Had she gone out and worked 35 hours to earn £35 a week, she'd have kept £5 of it, so of course she didn't work.

In such a situation it is clear that when a lender works out lending multiples for mortgage purposes, the wife's salary is going to be heavily discounted, because there's f~ck all of it left after her tax at his marginal rate. Thus was the 3x main salary or 2.5x plus 1x type of formula born, which recognised how little borrowing a wife's salary could support even if she earned the same as he did.

In some quarters this is still mistaken today, 50 odd years on, for some kind of "right" level of multiple to which house prices would revert were there justice in the world. But it was always based on what you could afford. In 1988 Lawson did away with it and gave married women their personal allowance and separate treatment back. So what a married couple could actually afford became 3.5x joint salaries.

If you cohabited unmarried, then in theory you had always been able to borrow 3.5x joint salaries. In practice you could not, necessarily, because some lenders took the view that if you bought a house together you'd eventually get married and then your income would fall, so they applied the 2.5x + 1x to you just the same.

The price crash that began later that year masked the effect of this reform for probably about 10 years. But that plus low interest rates mean that 5x joint income is cheaper to service today than 2.5x + 1x in 1975.

Essentially price reflects what the marginal buyer will pay, and where that buyer is a childless professional couple borrowing in a climate of 0.5% base rates then obviously you're going to see 2-bedroom flats in Willesden selling for half a million quid.

economic

westernpromise wrote: »

It never was an average cross section that bought houses, and 20 years was the absolute bottom of an epic price slump anyway. Since then London has recovered strongly, the sticks rather less so, but 1996 was no more the "right" price than today's price.

There is another factor persistently omitted from these hankerings after the prices of the past. A permanent and structural change of household make-up took root in the 1960s and was recognised in Lawson's tax reforms of 1988. Briefly, prior to that date a married woman had no personal tax allowance. Instead her husband had a larger allowance (whether she earned or not). If she did earn, her entire earnings were taxed at his marginal rate. In the 1970s that could mean a secretary or shop assistant paying 83% on every penny she earned if she happened to be married to a man whose earnings stood just short of the 1970s top rate.

That's an extreme case but it existed. It describes my parents, for example; a senior accountant married to a former secretary. Had she gone out and worked 35 hours to earn £35 a week, she'd have kept £5 of it, so of course she didn't work.

In such a situation it is clear that when a lender works out lending multiples for mortgage purposes, the wife's salary is going to be heavily discounted, because there's f~ck all of it left after her tax at his marginal rate. Thus was the 3x main salary or 2.5x plus 1x type of formula born, which recognised how little borrowing a wife's salary could support even if she earned the same as he did.

In some quarters this is still mistaken today, 50 odd years on, for some kind of "right" level of multiple to which house prices would revert were there justice in the world. But it was always based on what you could afford. In 1988 Lawson did away with it and gave married women their personal allowance and separate treatment back. So what a married couple could actually afford became 3.5x joint salaries.

If you cohabited unmarried, then in theory you had always been able to borrow 3.5x joint salaries. In practice you could not, necessarily, because some lenders took the view that if you bought a house together you'd eventually get married and then your income would fall, so they applied the 2.5x + 1x to you just the same.

The price crash that began later that year masked the effect of this reform for probably about 10 years. But that plus low interest rates mean that 5x joint income is cheaper to service today than 2.5x + 1x in 1975.

Essentially price reflects what the marginal buyer will pay, and where that buyer is a childless professional couple borrowing in a climate of 0.5% base rates then obviously you're going to see 2-bedroom flats in Willesden selling for half a million quid.

Exactly. Not many people mention about the marginal buyer. I think only you and I have on these forums.

Willesden is up and coming...

MobileSaver

kilby_007 wrote: »

if you believe it's FTB driving prices high then yes I'm a hypocrite, but I don't believe that's the case. I think the system is to blame.

You don't think the fact that the population continues to grow but we're only building around half as many new houses now as we were 20 years ago might be a factor? (I.e. there is no conspiracy theory, it's pretty simple supply and demand...)

Crashy_Time

https://www.theguardian.com/money/2016/jun/15/landlord-mortgages-plummet-by-85-after-stamp-duty-changes

Crashy_Time

Awww....no responses to the nice headline? :rotfl:

cells

westernpromise wrote: »

It never was an average cross section that bought houses, and 20 years was the absolute bottom of an epic price slump anyway. Since then London has recovered strongly, the sticks rather less so, but 1996 was no more the "right" price than today's price.

There is another factor persistently omitted from these hankerings after the prices of the past. A permanent and structural change of household make-up took root in the 1960s and was recognised in Lawson's tax reforms of 1988. Briefly, prior to that date a married woman had no personal tax allowance. Instead her husband had a larger allowance (whether she earned or not). If she did earn, her entire earnings were taxed at his marginal rate. In the 1970s that could mean a secretary or shop assistant paying 83% on every penny she earned if she happened to be married to a man whose earnings stood just short of the 1970s top rate.

That's an extreme case but it existed. It describes my parents, for example; a senior accountant married to a former secretary. Had she gone out and worked 35 hours to earn £35 a week, she'd have kept £5 of it, so of course she didn't work.

In such a situation it is clear that when a lender works out lending multiples for mortgage purposes, the wife's salary is going to be heavily discounted, because there's f~ck all of it left after her tax at his marginal rate. Thus was the 3x main salary or 2.5x plus 1x type of formula born, which recognised how little borrowing a wife's salary could support even if she earned the same as he did.

In some quarters this is still mistaken today, 50 odd years on, for some kind of "right" level of multiple to which house prices would revert were there justice in the world. But it was always based on what you could afford. In 1988 Lawson did away with it and gave married women their personal allowance and separate treatment back. So what a married couple could actually afford became 3.5x joint salaries.

If you cohabited unmarried, then in theory you had always been able to borrow 3.5x joint salaries. In practice you could not, necessarily, because some lenders took the view that if you bought a house together you'd eventually get married and then your income would fall, so they applied the 2.5x + 1x to you just the same.

The price crash that began later that year masked the effect of this reform for probably about 10 years. But that plus low interest rates mean that 5x joint income is cheaper to service today than 2.5x + 1x in 1975.

Essentially price reflects what the marginal buyer will pay, and where that buyer is a childless professional couple borrowing in a climate of 0.5% base rates then obviously you're going to see 2-bedroom flats in Willesden selling for half a million quid.

Many thanks for the ibfi and historical context.

I would however add one point I almost never see mentioned. That of gifts an inheritances. House prices are indeed higher today but so are the sums received by gifts and inheritances. Looking at just one side of a personal balance sheet (price of house up) without factoring in the other side (gifts and inheritances up) would be ignoring a huge chunk of the market and sustainability of the market.

The UK has a lot more wealth today than it did 30-40 years ago. I estimate some £200 billion annually are left as gifts and inheritances and a lot of that finds its way into property especially London property.


So the average man on the average full and part time wage nay indeed not be able to buy in London but the median full time working man with an equivlabt wife/partner both of who get £100k inheritances they have no trouble buying and drive the market forward. Some people nay see this as unfair but forget the judgement of inheritances being good or bad they exist and they bid in the market

cells

chucknorris wrote: »

I don't think that BTL is only a small part of London's housing market, I can't remember the figures, but I think cells had it at about 40% (it might have been 40% of the market excluding social housing).

If you look up your area LHA details there is a section that lists the proportion of each stock.
https://lha-direct.voa.gov.uk/search.aspx

So for inner east London (parts of hackney and tower hamlets) it has

161,209 properties
83,520 socially rented (blooming hell that's more than 50%!)
25,674 private rented (16%)
49,222 owned (31%)

It also shows the number of detached semi terrace flats etc for the area

There is however a problem in the data in that a lot of it is from 2011 and the private rental market has grown a lot in the last 5 years but it's interesting nonetheless

I think ONS has more up to date estimates

cells

wotsthat wrote: »

Yes, we hear a lot about posties and bin men buying in London too in the good old days. It's an urban myth - if houses were so cheap then and so expensive now more people would have owned.

A waitress and a warehouse man 20 years ago - just how much of their take home pay did they have to stump up towards the mortgage? Where was it?

Without a doubt inner London was much more affordable 20 years ago but that was the very low of a number of negative trends converging resulting in a once in a lifetime opportunity.

Some other places like stoke on Trent are cheaper in real terms now than they were in 1995. So it isn't a universal factor local areas have performed to local conditions and London especially the city Westminster and docklands boomed over the last 20 years. This isn't even anecdotal evidence the ones shows clearly that London GDP outperformed rUK and by quite some margin