House price increases. Is everyone absolutely loaded?

Lavendyr

Grumpy_chap said:

Lavendyr said:

My parents did indeed make sacrifices. They also bought houses in the 1990s which were priced at 2x their salaries. Not 4.5x, as we are often faced with today. 

Well, isn't this the problem - the supply of money facilitating an increase in house price to salary ratio?

I am not sure that a house at 2 x salary was typical in the 1990's, but it was certainly nowhere near the current salary multiples.

When I purchased my first house, the typical salary multiple that could be borrowed was 3x salary over 25-year term.  At a push, it was sometimes possible to get 3.25x or even 3.5x salary, but it was not a given and the higher multiples depended on some level of assessment - for example a newly trained medical Dr could get a higher multiple based upon the expectation of steeply rising earnings whereas an individual in a career with a flatter salary profile was not so able to do so.

Today, first time buyer salary multiples of 4x - 4.5x salary seem to be fairly standard and 5x, or even 6x, can be possible.  There are also schemes such as HTB that add supply of money to the system.  This increased supply of money forces house prices to increase faster than salaries.

To make repayments affordable at these higher salary multiples, the term is sometimes longer than the conventional standard of 25 years, 30 or 35 years can be possible.

The other factor that permits higher salary multiples to be viable is the low interest rates to which we have become accustomed.

If the financial services industry simply applied a maximum salary multiple of 3x salary, the result would be a sharp step-correction in the housing market, but we would all be more secure in the long term and more resilient to collective financial shocks.  This would, of course, mean that those with property experience a drop in the fictional paper worth of their asset but that is probably a cost that can be tolerated in the interest of the wider financial good.  Whether my house is worth 10x or 5x what I paid for it, or the same, is of no consequence unless I wish to sell or I am moved to negative equity.

Couldn't agree more. Absolutely the movement has been towards facilitating people to spend more which in turn facilitates the housing market price increases. 

Lavendyr

....I'll shut up now   

RelievedSheff

Lavendyr said:

MobileSaver said:

Lavendyr said:

MobileSaver said:

There's loads of affordable properties available!

The problem is that they're not good enough for the self-entitled "young people" of today who seem to want nice houses in nice areas just like their parents, conveniently forgetting that in most cases their parents had to work hard and make sacrifices for decades to get where they are today...

This quote was what shocked me about you, @MobileSaver. You are making incredibly generalised statements which are guaranteed to offend.

Perhaps I could have worded it better but you've mis-interpreted my comment, I was deliberately trying not to make a generalised statement. The phrase "self-entitled young people" was intended to mean "those young people who are self-entitled", it was not suggesting "all young people are self-entitled".

Lavendyr said:

MobileSaver said:

conveniently forgetting that in most cases their parents had to work hard and make sacrifices for decades to get where they are today...

My parents did indeed make sacrifices. ... were priced at 2x their salaries. Not 4.5x, as we are often faced with today. The fact remains that the housing market is a completely different place.

The problem with that viewpoint is that you are taking just one negative aspect of life between now and the 1990s (that houses were available for a lower salary multiple) and implying that therefore our parents had it so much easier.

You are ignoring numerous technological, financial, lifestyle and physical improvements to life generally and the housing market in particular over the last thirty years which all add up to the fact that in many respects it has never been so easy for young people to get on the property ladder as it is today.

Perhaps you should have worded it better then. You may have intended not to make a generalised statement but you did. Thank you for clarifying.

I'm not implying anything. Nor did I. I simply made the point regarding the salary multiple then vs now. I could also observe that my parents were able to own their own homes in their early 20s and contrast that with today. 

Why do you think it is "so easy" for young people to get onto the property ladder now? And why easier now than today? Are you a young person in this position? What qualifies you to make that assessment? What do you even consider a "young person" to be?  I'm genuinely curious. 

Are your statements not generalised as well though?

We know several people in their early 20's who have just bought their first properties.

They are doing things the traditional way and buying cheaper properties that are not in the greatest areas and require some work. They are not forever homes, they are homes they will stay in for a few years, smarten them up and then move on when the time comes to a better property in a better area.

It is wrong to suggest that all younger first time buyers have a hard time getting onto the property ladder.

MobileSaver

Grumpy_chap said:

Well, isn't this the problem - the supply of money facilitating an increase in house price to salary ratio?

If the financial services industry simply applied a maximum salary multiple of 3x salary, the result would be a sharp step-correction in the housing market

The supply of money is a factor in HPI but it's clearly not the only or even the main factor as you have to remember that a third of all properties are bought with cash, so nothing at all to do with the financial services industry.

Fundamentally, house prices are dictated by supply and demand; there are not enough homes that people want being built for the ever-increasing number of people that want and can afford them.

In particular, one of the often-forgotten issues is an important lifestyle change; more people than ever are living alone and the numbers keep increasing. So even if the population generally wasn't increasing (when obviously it is) you would still need extra homes built because more and more John and Janes now need two homes to live in rather than just one.

Grumpy_chap said:

This would, of course, mean that those with property experience a drop in the fictional paper worth of their asset but that is probably a cost that can be tolerated in the interest of the wider financial good. 

Do you really think over 20 million homeowners will tolerate a deliberate attempt to downvalue their main assets just so the younger generation can buy a cheap house?!?!

lisyloo

We had an early inheritance during 2020 due to COVID.
In our case we did not spend it on housing, but could this be one part of the explanation of an injection of cash to some individuals?

getmore4less

lisyloo said:

We had an early inheritance during 2020 due to COVID.
In our case we did not spend it on housing, but could this be one part of the explanation of an injection of cash to some individuals?

from the report(2019-2020) linked to earlier not that many.

Contrary to what many think most people are just getting on and buying with their own savings.

Most first time buyers (85%) funded the purchase of their first home with savings,
28% reported receiving help from family or friends while 6% used an inheritance as a source of deposit.
Between 2017-18 and 2019-20, the proportion of first time buyers using savings to purchase their first home increased (from 76% to 85%), whereas the proportion receiving a gift or loan from family or friends decreased from 39% to 28% over the same period,

also the reports has this gem on the benefits of buying over renting.

When HRP and partner income is used, mortgagors spent, on average, 19% of their income on mortgage payments, whereas rent payments were 29% of income for social renters and 38% of joint income for private renters. Excluding Housing Benefit, the average proportion of income spent on rent was 38% for social renters and 44% for private renters.

lisyloo

getmore4less said:

also the reports has this gem on the benefits of buying over renting.

When HRP and partner income is used, mortgagors spent, on average, 19% of their income on mortgage payments, whereas rent payments were 29% of income for social renters and 38% of joint income for private renters. Excluding Housing Benefit, the average proportion of income spent on rent was 38% for social renters and 44% for private renters.

I see the big benefit as the rent I'll save in the 40 years when I own the house outright, not necessarily any savings made during the mortgage lifetime. Just to be balanced a fair comparison should include buildings insurance, maintenance and transactional costs i.e. the bits that owners pay and renters don't., but it's a detail that doesn't affect the outcome.

zagfles

getmore4less said:

lisyloo said:

We had an early inheritance during 2020 due to COVID.
In our case we did not spend it on housing, but could this be one part of the explanation of an injection of cash to some individuals?

from the report(2019-2020) linked to earlier not that many.

Contrary to what many think most people are just getting on and buying with their own savings.

Most first time buyers (85%) funded the purchase of their first home with savings,
28% reported receiving help from family or friends while 6% used an inheritance as a source of deposit.
Between 2017-18 and 2019-20, the proportion of first time buyers using savings to purchase their first home increased (from 76% to 85%), whereas the proportion receiving a gift or loan from family or friends decreased from 39% to 28% over the same period,

So 34% used someone else's saving (ie family/friend/inheritance), so still pretty significant.

also the reports has this gem on the benefits of buying over renting.

When HRP and partner income is used, mortgagors spent, on average, 19% of their income on mortgage payments, whereas rent payments were 29% of income for social renters and 38% of joint income for private renters. Excluding Housing Benefit, the average proportion of income spent on rent was 38% for social renters and 44% for private renters.

Stating the obvious there.

1) People renting are more likely to be on a lower income, so hardly surprising they spend a greater % of income on housing.

2) Rent is nearly always going to be more expensive than a mortgage, it includes stuff a mortgage doesn't for instance maintenance, buildings insurance etc, usually estimated at about £2-3k a year. Plus of course landlord's profits.

3) As above most people use savings (whether their own or others') to at least partially fund the purchase, so the mortgage is only partially funding the property. 

zagfles

MobileSaver said:

Grumpy_chap said:

Well, isn't this the problem - the supply of money facilitating an increase in house price to salary ratio?

If the financial services industry simply applied a maximum salary multiple of 3x salary, the result would be a sharp step-correction in the housing market

The supply of money is a factor in HPI but it's clearly not the only or even the main factor as you have to remember that a third of all properties are bought with cash, so nothing at all to do with the financial services industry.

Fundamentally, house prices are dictated by supply and demand; there are not enough homes that people want being built for the ever-increasing number of people that want and can afford them.

In particular, one of the often-forgotten issues is an important lifestyle change; more people than ever are living alone and the numbers keep increasing. So even if the population generally wasn't increasing (when obviously it is) you would still need extra homes built because more and more John and Janes now need two homes to live in rather than just one.

Grumpy_chap said:

This would, of course, mean that those with property experience a drop in the fictional paper worth of their asset but that is probably a cost that can be tolerated in the interest of the wider financial good. 

Do you really think over 20 million homeowners will tolerate a deliberate attempt to downvalue their main assets just so the younger generation can buy a cheap house?!?!

Well I would. But I do agree that the majority are too stupid to understand that houses are a cost of living as well as an asset, so living in an expensive house doesn't actually make them richer.

lisyloo

Bank of Mum & Dad is not a new concept, so is 34% an increase or is it just the "norm" these days?