My first London flat (1988) is up for sale...

westernpromise

This is the flat I bought in London in 1988 as a second-time buyer.

http://www.rightmove.co.uk/property-for-sale/property-54507298.html

It looks better than it is. When the toilet flushes upstairs you can hear the water making its way across the whole width of the building inches above your ceiling, which is so low you can touch it without stretching. This was done to squeeze three floors in. Another consequence of that is that the interior floor and outside ground levels are the same, so damp inside the flat above the damp course was always an issue. There are several large, violent council estates nearby whose residents tend to kill people (http://www.dailymail.co.uk/news/article-2027427/Philip-Lawrence-killer-Learco-Chindamo-tells-time-murdered-headteacher.html). Despite its W9 postcode, it's not Maida Vale. The nearest Tube is Queens' Park and the words "West Kilburn" are printed over the road in the London A to Z. I sold in 1999 for £105k to trade up.

Anyway, when I bought, I was on £24k. The national average salary then was £15k or so, so I was getting about 160% of that. You had a £3,005 personal allowance and you paid 25% on the first £20.7k of earnings and 40% above that, plus NI. On my £24k, stoppages were thus £6.6k or so, hence my net was £1,400 a month.

The asking price of the flat then was £87.5k. I paid £85k, with a £72k mortgage. By 1990, this flat was worth £60k. The mortgage rate was 16% which made the monthly payments £978 or just about 70% of my take-home.

Turning to today, a buyer likewise on 160% of the national average wedge (https://www.ons.gov.uk/employmentandlabourmarket/peopleinwork/earningsandworkinghours) would be on £42k a year. The personal allowance is now £11,000, and stoppages would be around £10k. So net monthly would be around £2,600 (i.e. you now keep 74% rather than 70% of your gross pay).

The flat is offered at £525k today, but it won’t fetch that. It will go for probably £495k. Assuming the same LTV now as then, today’s buyer would need a £419k mortgage (which can be fixed for 5 years - unheard-of in 1988) at 2.25%. This would result in payments of £1,827 a month.

Three things stand out here. One is that in terms of monthly cost to buy, there is nothing to choose between now and then. It cost 70% of my then take-home to pay the mortgage in 1990, and it would still do so. The second is that over five years, at those kind of rates, I made for all sensible purposes no inroads whatsoever into the mortgage balance; it was £72k to start with and it still was, more or less, five years later. After 5 years at 2.25%, in contrast, you’d have paid off a sixth of that loan. Finally, although today’s monthly cost and equity accumulation positions are thus the same or better, it would probably be impossible now to raise the necessary mortgage. 3x salary went through on the nod back then, but it would be 10x salary now and you probably couldn’t get that even though affordability is no different.

When I saw my old flat come up for sale at that price I thought it was a bit steep, but I thought that in 1988 too. I was roughly equally right on both occasions - today that flat would sell to somebody on a decent latter-day London salary of probably £80k who’s prepared to buy at an aggressive multiple of that.

PasturesNew

I wouldn't be surprised if the buyer didn't fit in a 2nd bedroom, where the 2nd set of patio doors are.

cells

actually monthly affordability is not so bad as you say with mortgages at 2% interest rates a £500k house only has an interest bill of £10k a year. The problem is that banks are forced to only lend 4-5x income max.

The rules should be changed so its 10 x single income (they can also rent out the spare room) or 5 x joint income which is already the case.

If anything the rules discriminate against singletons and favor couples. This is one of the reasons the house-price-crash-wishers think prices are absurd they are only able to see and bid upto 5 x income while everyone else can go to 10 x (5x joint = ~10x single)

jimibaboza

Someone earning 42k a year would never get a mortgage for that place. Not to mention that in order to get a rate even close to 2.25% (the lowest I could find was 2.5) is to have around 100 thousand pounds in deposit. Which I think is a bit out of reach for second time buyers unless they happened to buy their first place a while ago.

In fact putting the above figures into the Barclays website, they told me that the max they would lend me was 278100, not sure if that includes the 19% deposit but either way that is way short.

economic

cells wrote: »

actually monthly affordability is not so bad as you say with mortgages at 2% interest rates a £500k house only has an interest bill of £10k a year. The problem is that banks are forced to only lend 4-5x income max.

The rules should be changed so its 10 x single income (they can also rent out the spare room) or 5 x joint income which is already the case.

If anything the rules discriminate against singletons and favor couples. This is one of the reasons the house-price-crash-wishers think prices are absurd they are only able to see and bid upto 5 x income while everyone else can go to 10 x (5x joint = ~10x single)

actually banks tend to lend less then 5x joint incomes, more like 3.5 times.

lisyloo

This is one of the reasons the house-price-crash-wishers think prices are absurd they are only able to see and bid upto 5 x income

So you're saying most crashists are single?
Who'd thought it :-)

westernpromise

jimibaboza wrote: »

Someone earning 42k a year would never get a mortgage for that place. Not to mention that in order to get a rate even close to 2.25% (the lowest I could find was 2.5) is to have around 100 thousand pounds in deposit.

No, but its price is only as high as that to begin with exactly because the 2016 equivalent of the 1988 me wouldn't be on my £24k nor even £42k. A mid-20s bloke in a high-paying line of work in the London of today would be on £80 to £100k and then it does become possible.

In 1986 I bought a house for £26k that I sold in 1988 for £47k. So that was where I got the deposit from. I simply applied the same proportions to the presumptive £495k sale price. That's a £75k deposit from a second-time buyer.

PasturesNew wrote:

I wouldn't be surprised if the buyer didn't fit in a 2nd bedroom, where the 2nd set of patio doors are.

Believe me, it can't be done. It was a very well laid out flat as one-bedders go and the current owner has done a lot to present it well - the open-plan kitchen wasn't open plan and the "patio" doors were just windows. The "patio" is just the path around the building but what has been done there enables you to open the room up and include that space to make the room look bigger. That has pretty much maxed its potential out. The bathroom is behind the far wall of the kitchen in picture 6 and the bedroom is behind the living room wall on the right. Between them is a short passageway. That's it. The floors are cement so you can't reroute the plumbing either.

I feel quite happy seeing it looking that nice. When I last was in it it had been trashed by a scumbag tenant and looked very sad. I thought about remodelling it but after 11 years of painful ownership was happy just to offload.

This is the duplex flat that is above and next door.
http://www.zoopla.co.uk/property-history/5/st-simons-hall/19-macroom-road/london/w9-3hy/35601817

You can see how low the upstairs ceilings are: you can hardly stand up straight. Those are the original kitchen and bathroom all the flats had from 28 years ago - visibly falling apart. I don't know you could let a place in condition that poor.

westernpromise

lisyloo wrote: »

So you're saying most crashists are single?
Who'd thought it :-)

Their sunny personalities and positive and happy outlook would tend to keep them single, yes. For some reason (probably to do with VIS, EAs, TPTB, ZIRP, etc) angry envious people tend to be unattractive as partners.

michaels

westernpromise wrote: »

Turning to today, a buyer likewise on 160% of the national average wedge (https://www.ons.gov.uk/employmentandlabourmarket/peopleinwork/earningsandworkinghours) would be on £42k a year. The personal allowance is now £11,000, and stoppages would be around £10k. So net monthly would be around £2,600 (i.e. you now keep 74% rather than 70% of your gross pay).

The flat is offered at £525k today, but it won’t fetch that. It will go for probably £495k. Assuming the same LTV now as then, today’s buyer would need a £419k mortgage (which can be fixed for 5 years - unheard-of in 1988) at 2.25%. This would result in payments of £1,827 a month.

Three things stand out here. One is that in terms of monthly cost to buy, there is nothing to choose between now and then. It cost 70% of my then take-home to pay the mortgage in 1990, and it would still do so.

Affordability is probably actually even easier than you suggest because the real cost of other life essentials has probably fallen over the period so requiring a smaller proportion of income.

However when you look at paying off capital you are being duped by money illusion. The 10%+ inflation when rates were so high in 1990 means that the real value of that 72k you owed was depreciating even more rapidly than than the capital payments made today are reducing the real value of the outstanding mortgage.

westernpromise

michaels wrote: »

However when you look at paying off capital you are being duped by money illusion. The 10%+ inflation when rates were so high in 1990 means that the real value of that 72k you owed was depreciating even more rapidly than than the capital payments made today are reducing the real value of the outstanding mortgage.

I'm not so sure. We had massive interest rates partly because of 10% inflation but partly because the Berlin Wall came down and Germany borrowed to reconstruct rather than raising taxes. If Germany is offering a 10% coupon on D-mark debt, that means sterling's got to offer more. Inflation actually got squeezed out pretty swiftly.

By 1998 I was on £55k which was promotions rather than inflation at work. It took 10 years for its price to recover to what I'd paid.

When were you at Cambridge BTW?

michaels

westernpromise wrote: »

I'm not so sure. We had massive interest rates partly because of 10% inflation but partly because the Berlin Wall came down and Germany borrowed to reconstruct rather than raising taxes. If Germany is offering a 10% coupon on D-mark debt, that means sterling's got to offer more. Inflation actually got squeezed out pretty swiftly.

By 1998 I was on £55k which was promotions rather than inflation at work. It took 10 years for its price to recover to what I'd paid.

When were you at Cambridge BTW?

Clearly progress against inflation is a very personal thing depnding on how your industry did for pay rises etc. I don't know what happened to real wages durign that period?

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