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

economic

Jason74 wrote: »

I don't think it's a case of needing to "labour the economic history lesson a bit more". It's a case of I think you're wrong.

Nobody is denying that things were seriously horrible for a few years as a result of the high interest rates. We agree on that, and while you've provided the context of that accurately, there is nothing there that I didn't already know.

But from there, I have to disagree with you. Firstly , on wages, the evidence suggests that your view here is incorrect. Page 5 of this document ( http://www.ifs.org.uk/uploads/Presentations/Understanding%20the%20recession_230915/SMachin.pdf )suggests that real wages only fell very slightly in the early 90s (and not for very long). This by definition meant that nominal wages were increasing fairly significantly due to inflation, meaning that my point that the value of the loan repayment relative to income fell fairly quickly remains accurate.

In light of the above, I also feel that you've over egged the issue around the inability to overpay. You are right of course that the 72k at 15% would take 13 years to get to 60k. The Monthly payment would be c922 per Month. Overpaying by 80 per Month (something that would have been achievable within a couple of years given larger nominal pay increases than today) reduces the time to get down to 60k from 13 years to barely 5, which changes the dynamic completely.

And of course, you've completely ignored the issue of long term rates. Someone taking out a Mortgage in 1990 would have seen rates fall much lower than the level they took the Mortgage out at within 5-6 years, and then stay there for the rest of the Mortgage. This fact also of course is a factor in the large price rises since. For someone taking a Mortgage out now, there is little or no prospect of this, but there is a risk of much higher rates a few years down the line.

So your post doesn't change the two main assertions of mine. These are firstly that in the current environment, nominal pay rises are likely to be much less than for someone taking out a Mortgage today than for someone doing the same 20 or 25 years ago. And secondly, that rates for someone taking a Mortgage 20 - 25 years ago were materially lower for the majority of the Mortgage term than at the time the loan was taken out. This situation is unlikely to be replicated for those taking a Mortgage now, and indeed the reverse is a very real risk.

Given the above, it is a simple statement of fact that a buyer today is likely to face loan repayments that are a higher proportion of their income for longer than was the case at almost any time in the last 50 years or so.

You are looking at two factors (rates and wages) separately. You have a very narrow and simplistic view resulting in your argument being completely useless. You can not forecast things in isolation for everything is connected and you are missing so so many other factors too. Good luck.

westernpromise

Jason74 wrote: »

But from there, I have to disagree with you. Firstly , on wages, the evidence suggests that your view here is incorrect. Page 5 of this document ( http://www.ifs.org.uk/uploads/Presentations/Understanding%20the%20recession_230915/SMachin.pdf )suggests that real wages only fell very slightly in the early 90s (and not for very long).

You're only looking at wage growth, not at net income growth. That your income has gone up £500 a year after tax is not a lot of comfort if your mortgage has gone up £6,000. What would that chart look like if it showed reak wages minus mortgage payments? The fact that it dips after 2008 tells you it's dodgy.

Overpaying by 80 per Month (something that would have been achievable within a couple of years given larger nominal pay increases than today) reduces the time to get down to 60k from 13 years to barely 5, which changes the dynamic completely.

No, because the same supposed advantage of overpayment accrues to the buyer of today as well and more so. As I showed, in 1990 and today the mortgage absorbs 70% of income in either event. Finding an extra £80 out of the £400 you were left with in 1990 was impossible (at one point my disposable income after bills was 2/3rds of 1% of the gross, i.e. about £160 a year or £13 a month). Finding £80 out of the £800 you'd be left with today should be child's play. The buyer of today, let it not be forgotten, has seen 28 years of wage growth since 1988 versus the 2 or so in my example.

And of course, you've completely ignored the issue of long term rates.

I haven't ignored them, I'm simply pointing out two things that people who were not around then have forgotten or have not worked out. One, today's high prices are offset by and in consequence of those low rates so it should not be surprising that affordability is, as I have shown, net basically much the same as 1990. My second point, which you have carefully ignored, is that in the absence of equity accumulated painlessly by simply keeping up payments on a cheap loan for five years, these supposedly ever-lower rates were in fact unavailable to the majority of borrowers. A flat worth £60k with a mortgage of £72k could not be remortgaged at a lower mortgage rate unless you could find £12k in cash. So you paid the SVR of the lender you were with and if that SVR was BoE plus 4%, tough. You paid until you had the equity, which you had to wait for; I can recall letters in the money pages of newspapers in 2000 in which people sought advice about how to get out from under this 11% mortgage rate they were still paying. Today that risk simply doesn't arise.

Given the above, it is a simple statement of fact that a buyer today is likely to face loan repayments that are a higher proportion of their income for longer than was the case at almost any time in the last 50 years or so.

No, ultimately it's just an assumption based on the belief that incomes will continue to fall for everyone and that they went up for everyone in the 1990s. Disposable incomes today are far higher now than then exactly because of cheap rates. You're coming perilously close to misunderstanding the era of 15% interest rates as a nirvana in which the future was so bright we had to wear shades.

Mortgagefreeman

I'm sure your first flat was very nice, and we're all happy for you. It's just that many of us are getting a bit bored with you 'banging on' about it.

mwpt

Jason74 wrote: »

I don't think it's a case of needing to "labour the economic history lesson a bit more". It's a case of I think you're wrong.

Nobody is denying that things were seriously horrible for a few years as a result of the high interest rates. We agree on that, and while you've provided the context of that accurately, there is nothing there that I didn't already know.

But from there, I have to disagree with you. Firstly , on wages, the evidence suggests that your view here is incorrect. Page 5 of this document ( http://www.ifs.org.uk/uploads/Presentations/Understanding%20the%20recession_230915/SMachin.pdf )suggests that real wages only fell very slightly in the early 90s (and not for very long). This by definition meant that nominal wages were increasing fairly significantly due to inflation, meaning that my point that the value of the loan repayment relative to income fell fairly quickly remains accurate.

In light of the above, I also feel that you've over egged the issue around the inability to overpay. You are right of course that the 72k at 15% would take 13 years to get to 60k. The Monthly payment would be c922 per Month. Overpaying by 80 per Month (something that would have been achievable within a couple of years given larger nominal pay increases than today) reduces the time to get down to 60k from 13 years to barely 5, which changes the dynamic completely.

And of course, you've completely ignored the issue of long term rates. Someone taking out a Mortgage in 1990 would have seen rates fall much lower than the level they took the Mortgage out at within 5-6 years, and then stay there for the rest of the Mortgage. This fact also of course is a factor in the large price rises since. For someone taking a Mortgage out now, there is little or no prospect of this, but there is a risk of much higher rates a few years down the line.

So your post doesn't change the two main assertions of mine. These are firstly that in the current environment, nominal pay rises are likely to be much less than for someone taking out a Mortgage today than for someone doing the same 20 or 25 years ago. And secondly, that rates for someone taking a Mortgage 20 - 25 years ago were materially lower for the majority of the Mortgage term than at the time the loan was taken out. This situation is unlikely to be replicated for those taking a Mortgage now, and indeed the reverse is a very real risk.

Given the above, it is a simple statement of fact that a buyer today is likely to face loan repayments that are a higher proportion of their income for longer than was the case at almost any time in the last 50 years or so.

Agree with pretty much all of this, I bang on about it often enough.

The evidence shows that aside from some hardship for a few years (which I'm not dismissing as trivial), people who bought back when the OP did, did extremely well out of it in the medium to long term for the reasons you are stating above.

I think it is very very unlikely that we will see that replicated again. Again, for the reasons you stated above.

I also find it weird that for an economics forum there appear to be many fairly financially illiterate people around because they're all falling for his rhetoric.

cells

Jason74 wrote: »

In some cases, the bit about moving elsewhere is probably true. If you have no particular ties to London, then maybe moving there (or at least staying there long term) isn't the best move for some people if they don't earn the kind of money needed to be able to make the most of the city.

But for some, everything they knew and grew up with is in London. And while nobody has a God given right to live in a particular area, I do think people being unable to remain in the areas they grew up in and have families on account of the cost of housing is, in and of itself, a bad thing. I appreciate though that others will disagree here.

Finally, in respect of work ethic and expectations among the young, I'm certain that young people today are no less motivated and willing to roll up there sleeves to get on than was ever the case (and I'm in my 42, so I'm not "defending my own" on this one). I think expectations may be an issue to be fair, but even then I'm not so sure.

There are some studies have suggested that far from younger people pursuing posessions and experiences and being unable to get on the property ladder as a result, the issue is that younger people realise (generally correctly in some regions) that the deck is stacked against them to the point where they have no realistic prospect of achieving home ownership. Having come to that realisation, they then pursue other goals instead. That isn't unreasonable imho, although of course whether it's accurate is open to question.

~24% of London is council homes. Those people can afaik pass them down. Thats them sorted.

Some ??55%?? of Londoners owned there homes about 10 years ago. Thats them sorted too with 1: cheap prices of a decade ago and 2: inheritances passing down


I make that about 80% of London households are not harmed by higher prices.

cells

Jason74 wrote: »

I don't think it's a case of needing to "labour the economic history lesson a bit more". It's a case of I think you're wrong.

Nobody is denying that things were seriously horrible for a few years as a result of the high interest rates. We agree on that, and while you've provided the context of that accurately, there is nothing there that I didn't already know.

But from there, I have to disagree with you. Firstly , on wages, the evidence suggests that your view here is incorrect. Page 5 of this document ( http://www.ifs.org.uk/uploads/Presentations/Understanding%20the%20recession_230915/SMachin.pdf )suggests that real wages only fell very slightly in the early 90s (and not for very long). This by definition meant that nominal wages were increasing fairly significantly due to inflation, meaning that my point that the value of the loan repayment relative to income fell fairly quickly remains accurate.

In light of the above, I also feel that you've over egged the issue around the inability to overpay. You are right of course that the 72k at 15% would take 13 years to get to 60k. The Monthly payment would be c922 per Month. Overpaying by 80 per Month (something that would have been achievable within a couple of years given larger nominal pay increases than today) reduces the time to get down to 60k from 13 years to barely 5, which changes the dynamic completely.

And of course, you've completely ignored the issue of long term rates. Someone taking out a Mortgage in 1990 would have seen rates fall much lower than the level they took the Mortgage out at within 5-6 years, and then stay there for the rest of the Mortgage. This fact also of course is a factor in the large price rises since. For someone taking a Mortgage out now, there is little or no prospect of this, but there is a risk of much higher rates a few years down the line.

So your post doesn't change the two main assertions of mine. These are firstly that in the current environment, nominal pay rises are likely to be much less than for someone taking out a Mortgage today than for someone doing the same 20 or 25 years ago. And secondly, that rates for someone taking a Mortgage 20 - 25 years ago were materially lower for the majority of the Mortgage term than at the time the loan was taken out. This situation is unlikely to be replicated for those taking a Mortgage now, and indeed the reverse is a very real risk.

Given the above, it is a simple statement of fact that a buyer today is likely to face loan repayments that are a higher proportion of their income for longer than was the case at almost any time in the last 50 years or so.

London is special its a city which has become an exporting power house with its GDP growing much more rapidly than the rUK for the last 20 years.

Its no doubt that London is now less affordable than 20 years ago. Although this is a very recent event just 5 years ago London was cheap! One could argue even 3 years ago prices were cheap.


High London prices however is no bad thing. imagine London GDP did not grow more than rUK what would London and the UK look like today. Sure house prices would be cheaper but wages and taxes collected in London would be a lot lower and arguably the currency a lot weaker too. London pays far more than its fair share of taxes the people buying £1m homes in zone 2 are handing over about £43k in stamp duty were that home £250k instead it would colelct £2.5k in taxes. Who do you propose pay the difference in their income tax? It isnt even just homes I would go so far as to say Londons GROWTH v 25 years ago relative to rUK is possible responsible for as much as 10% of all taxes (thats the growth not the nominal amount). That means somehting like £60B of taxes are collected thanks to London booming and getting expensive. Had that not happened the economy would be about 10% smaller and we would need to find some £60B of taxes elsewhere a very dificult thing to do

cells

Jason74 wrote: »

I don't think it's a case of needing to "labour the economic history lesson a bit more". It's a case of I think you're wrong.

Nobody is denying that things were seriously horrible for a few years as a result of the high interest rates. We agree on that, and while you've provided the context of that accurately, there is nothing there that I didn't already know.

But from there, I have to disagree with you. Firstly , on wages, the evidence suggests that your view here is incorrect. Page 5 of this document ( http://www.ifs.org.uk/uploads/Presentations/Understanding%20the%20recession_230915/SMachin.pdf )suggests that real wages only fell very slightly in the early 90s (and not for very long). This by definition meant that nominal wages were increasing fairly significantly due to inflation, meaning that my point that the value of the loan repayment relative to income fell fairly quickly remains accurate.

In light of the above, I also feel that you've over egged the issue around the inability to overpay. You are right of course that the 72k at 15% would take 13 years to get to 60k. The Monthly payment would be c922 per Month. Overpaying by 80 per Month (something that would have been achievable within a couple of years given larger nominal pay increases than today) reduces the time to get down to 60k from 13 years to barely 5, which changes the dynamic completely.

And of course, you've completely ignored the issue of long term rates. Someone taking out a Mortgage in 1990 would have seen rates fall much lower than the level they took the Mortgage out at within 5-6 years, and then stay there for the rest of the Mortgage. This fact also of course is a factor in the large price rises since. For someone taking a Mortgage out now, there is little or no prospect of this, but there is a risk of much higher rates a few years down the line.

So your post doesn't change the two main assertions of mine. These are firstly that in the current environment, nominal pay rises are likely to be much less than for someone taking out a Mortgage today than for someone doing the same 20 or 25 years ago. And secondly, that rates for someone taking a Mortgage 20 - 25 years ago were materially lower for the majority of the Mortgage term than at the time the loan was taken out. This situation is unlikely to be replicated for those taking a Mortgage now, and indeed the reverse is a very real risk.

Given the above, it is a simple statement of fact that a buyer today is likely to face loan repayments that are a higher proportion of their income for longer than was the case at almost any time in the last 50 years or so.

on the other hand higher house prices have/will/do result in higher inheritances and London boom resulted in higher services/lower taxes than otherwise would have been.

The inheritance one is the big one. If a persons housing cost went up £100,000 but their inheritance also went up £100,000 how much worse off are they?

now I know not everyone gets an inheritance but a LOT of people do. A quick google shows an ONS page saying 1.6 million adults received an inheritance of £1,000 or more over the last two years (the link is old for 2008-2010) but it should be more or less that. So some 800,000 adults PER YEAR receive an inheritance. This also does not take into account gifts before inheritance tax (aka early inheritance gifts)

So look at both sides of the balance sheet

cells

mwpt wrote: »

Agree with pretty much all of this, I bang on about it often enough.

The evidence shows that aside from some hardship for a few years (which I'm not dismissing as trivial), people who bought back when the OP did, did extremely well out of it in the medium to long term for the reasons you are stating above.

I think it is very very unlikely that we will see that replicated again. Again, for the reasons you stated above.

I also find it weird that for an economics forum there appear to be many fairly financially illiterate people around because they're all falling for his rhetoric.

Its a London thing, most the other 85% of the country did not experience the same boom in some parts property is worth less in real terms than it was in Jan 1995 (earliest land reg public data)

And no London wont see the same huge swing in prices because it was a very specific circumstances that meant London prices were far too cheap in 1995 rather than far to expensive today.

westernpromise

cells wrote: »

Its a London thing, most the other 85% of the country did not experience the same boom in some parts property is worth less in real terms than it was in Jan 1995 (earliest land reg public data)

And no London wont see the same huge swing in prices because it was a very specific circumstances that meant London prices were far too cheap in 1995 rather than far to expensive today.

I should perhaps add that when I bought a one-bed flat for £85k in a ropey area in 1988, I was mightily ticked off that to buy in St John's Wood as my parents had done when not much older than I was wold have required a mortgage of 10x my salary.

Then as now areas become less affordable, including wherever you grew up. You can either gather on a website and whine for a crash, or you can just live somewhere else and wait for it to get less grotty.

lisyloo

Jason74 wrote: »

But for some, everything they knew and grew up with is in London.

We are not talking about sending them somewhere with an entirely different culture. If they like city life then there are plenty of other big cities. I was merely suggesting that if ownership is a priority then there are options. There are also cheaper parts of London, so sacrifices might be made that way. I'm not saying that's ideal and I fully understand the issue myself having chosen to sacrifice space and money instead of location, however there are always options.

And while nobody has a God given right to live in a particular area, I do think people being unable to remain in the areas they grew up in and have families on account of the cost of housing is, in and of itself, a bad thing. I appreciate though that others will disagree here.

If you are talking about owning an asset without meeting any qualifications (such as earnings) then most people would disagree with you. There is no God given right to ownership, you need to go and earn it.
A right to merely shelter (not ownership) where you grew up is an interesting concept. Personally I don't think that right should exist for normal people although it may make sense for councils to keep vulnerable people near to their support networks.

There are some studies have suggested that far from younger people pursuing posessions and experiences and being unable to get on the property ladder as a result, the issue is that younger people realise (generally correctly in some regions) that the deck is stacked against them to the point where they have no realistic prospect of achieving home ownership. Having come to that realisation, they then pursue other goals instead. That isn't unreasonable imho, although of course whether it's accurate is open to question.

I'm not sure whether you are London centric (I'm not here enough to follow the personalities) but it's widely agreed that about half the country is affordable,
So young people need to decide either that owning is a priority in which case they should move, or they need to decide that owning is not a priority and quit moaning that the world isn't how they'd like it. This is what people have always done in the past.
I have no issue with other people's choice and if they decide to sell ice creams on the beach then that's absolutely fine with me, but they should just stop moaning.

Do your research, make a decision, review it regularly, but people that moan all the time just have an unhappy life.
I guess it comes to whether you are a glass half full or half empty person.
I could make myself permanently unhappy by deciding to compare myself with the 5% of the population who have more than me.
Alternatively I could be happy that I'm better off than 95%.
Also I could do spend my time trying to improve my lot rather than moaning.
I don't spend a lot of time on here because I think it's better spent elsewhere improving either my career, relationships, social life etc.

Would you agree Jason that those who aren't happy with their lot might be better off trying to actively do sonmething about it (like getting an evening or weekend job) rather than moaning that they can't have what they what?
I think we'd all have great respect for the person that worked really hard and made sacrifices to get what they wanted.