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

Filo25

I overlapped with you michael, 90 - 93.

westernpromise

I'm the old fart of 82-85.

mwpt

What a load of nonsense the OP makes. He takes his absolute worst case scenario of 16% interest rates which didn't happen for very long and were always on a downward trend. He equates this with interest rates of today which will not be going all that much lower. Certainly won't be dropping like they did from 16% downward. He completely ignores the 2.5x salary deposit required to buy the place today to get the low interest rates he mentions, vs the 0.5x salary deposit he bought with.

He also ignores that overpaying this place to pay down the mortgage is HARD. Compared to overpaying a cheaper place with a wage as a higher percentage of the mortgage. Also ignores the fact that interest rates were high because of inflation and wage inflation was thus also high. Today we have very low wage inflation meaning your debt is remaining very similar in real terms as the years go on. Not so previously.

economic

mwpt wrote: »

What a load of nonsense the OP makes. He takes his absolute worst case scenario of 16% interest rates which didn't happen for very long and were always on a downward trend. He equates this with interest rates of today which will not be going all that much lower. Certainly won't be dropping like they did from 16% downward. He completely ignores the 2.5x salary deposit required to buy the place today to get the low interest rates he mentions, vs the 0.5x salary deposit he bought with.

He also ignores that overpaying this place to pay down the mortgage is HARD. Compared to overpaying a cheaper place with a wage as a higher percentage of the mortgage. Also ignores the fact that interest rates were high because of inflation and wage inflation was thus also high. Today we have very low wage inflation meaning your debt is remaining very similar in real terms as the years go on. Not so previously.

agree. the more i think about it the more i think prices are just too high at the moment. i wouldnt buy anymore unless it was a really special deal. i have my own modest apartment in a nice area and happy here for the foreseeable future. i rather put my money on better investments.

westernpromise

If your mortgage is 70% of your take-home, which it was in either case, then overpaying is exactly as difficult in either case.

The difference between now and then is that now, 5 years of maintaining payments would eliminate 16% of your initial debt. Then, 5 years of maintaining payments left you with pretty much all the initial debt.

A mortgage at high rates can't be paid down. A mortgage at cheap rates can be paid down.

It's a myth that there was inflation and hence wage growth in the 1990s. In the 1970s maybe, in the 1990s no way. If you look at wage growth 1987 to 1997 the chart then looks like it does now.
(http://www.ons.gov.uk/ons/rel/elmr/economic-and-labour-market-review/no--8--august-2010/labour-market-in-1980-s--1990-s-and-2008-09-recession.pdf; see figure 6, at the top of page 34)

What actually happened was that we had base rates of 11.875% from early 1985 and they averaged 11% for the next 7 years, with a peak of 14.875%. Base rates, not mortgage rates. Once you were in negative equity, you could not, of course, remortgage. So if you had a £60k flat with a £72k mortgage, you were on your lender's SVR of base rate plus anything up to 4% until you got out of negative equity, which - as I've shown - you didn't, when rates were that high.

So actual experienced mortgage rates were far higher than simply looking at bank base rates would lead you to think. I was still paying 12.5% in 1992, for example.

westernpromise

Here is the BoE's interest rate history for that era, for those interested.

1985
14 Jan 11.8750
28 Jan 13.8750
20 Mar 13.3750
28 Mar 12.8750
19 Apr 12.3750
11 Jul 11.8750
26 Jul 11.3750

1986
15 Jan 12.3750
19 Mar 11.3750
11 Apr 10.8750
18 Apr 10.3750
23 May 9.8750
15 Oct 10.8750

1987
9 Mar 10.3750
18 Mar 9.8750
28 Apr 9.3750
8 May 8.8750
6 Aug 9.8750
23 Oct 9.3750
4 Nov 8.8750
3 Dec 8.3750

1988
1 Feb 8.8750
17 Mar 8.3750
8 Apr 7.8750
17 May 7.3750
3 Jun 7.8750
10 Jun 8.3750
24 Jun 8.8750
7 Jul 9.8750
21 Jul 10.3750
8 Aug 10.8750
25 Aug 11.8750
25 Nov 12.8750

1989
25 May 13.7500
31 Aug 13.8438
4 Sep 13.8750
8 Sep 13.7500
6 Oct 14.8750

1990
8 Oct 13.8750

1991
13 Feb 13.3750
27 Feb 12.8750
22 Mar 12.3750
12 Apr 11.8750
24 May 11.3750
12 Jul 10.8750
4 Sep 10.3750

1992
5 May 9.8750
22 Sep 8.8750
16 Oct 7.8750
13 Nov 6.8750

1993
26 Jan 5.8750
23 Nov 5.3750

1994
8 Feb 5.1250
12 Sep 5.6250
7 Dec 6.1250

1995
2 Feb 6.6250
13 Dec 6.3750

1996
18 Jan 6.1250
8 Mar 5.9375
6 Jun 5.6875
30 Oct 5.9375

fairy_lights

An interesting read! Are you glad you sold up to move on when you did OP?

lisyloo

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. 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.

Yes Jim you're right, one person on an unspectacular salary will struggle in expensive cities.
On that salary I'd suggest they move elsewhere if they really want a home.
A £35k job in say Bristol, Birmingham, Swindon, Manchester will give that person a much better life.

co-op_lover

Think if that is over a half of a million pounds we are in more trouble than i originally thought.

westernpromise

fairy_lights wrote: »

An interesting read! Are you glad you sold up to move on when you did OP?

It was always a nice flat other than the issues mentioned. I lived in it for 6 1/2 years then was moved overseas, so I let it out and never moved back in before selling in 1999.

The thing is that these marginal edge-of-somewhere areas go up fast because buyers get priced out of the adjoining nice area. The bordering slightly sh!tty area starts to look like a good value, up-and-coming neighbourhood. They collapse nastily when things turn, as buyers realise they're being asked for Maida Vale money to live in West Kilburn. Thus this place is more volatile than Maida Vale is more volatile than Little Venice.

When I bought it you could get 1 bedroom in Little Venice for £120k so at £85k this looked cheap. 2 years later it was worth £60k while Little Venice was still worth £110k, if you could find anyone to sell to you.

Not a punt I'd take today, but it was ok back then and I had some fun there.