Mortgage repayments and inflation

Turnbull2000

Myself and a few others on this forum have been saying this for a while, yet a few individuals STILL deny the new and rather shocking circumstances that have arisen with regards to affordability. So I repeat; stretch yourself now and you'll potentially stretch yourself for many, many years. Don't be fooled by talk of sacrifices "for just a few years".

http://www.yorkshirepost.co.uk/businessnews/Low-inflation-puts-housing-affordability.3951594.jp

The group said someone on average earnings buying an average priced house with a 25-year repayment mortgage taken out during the final quarter of last year would spend around 32 per cent of their take-home pay on their mortgage during its term. It said that on this measure, despite the fact that initial mortgage repayments were 20 per cent lower than in the mid-1980s, over the whole mortgage term, the loan would cost around a fifth more than one taken out at the peak of the late 1980s boom.

It found that a homeowner who took out a similar loan in the final quarter of 1973 would have seen the level of take-home pay absorbed by mortgage repayments halve during the first five years of the loan due to average income growth of more than 13 per cent a year and a fall in interest rates from 11 per cent to 8.5 per cent.

In the mid-1980s double digit earnings growth also helped mortgage repayments reduce as a share of take-home pay, although the trend was temporarily reversed between mid-1988 and mid-1990 due to rising mortgage rates.

But even taking this into account, after just seven years, the burden of mortgage payments would still have halved.

By contrast, it would take 20 years for someone who took out a mortgage at the end of last year to see the proportion of their take-home pay that was needed to pay their mortgage halve, due to slower income growth.

The report said the initial mortgage payment was now a more lasting burden on households' finances than in the past.

pickledtink

Horrible sad stuff. It's all really bringing back to me the sheer misery and terror of the early 90s. I held on for dear life and made it but remember getting seriously ill with overwork and worry just trying to survive at the time.
I've always called it the 5 lost years of my life.

JonnyBravo

Turnbull2000 wrote: »

from a quote used by Turnbull2000....

In the mid-1980s double digit earnings growth also helped mortgage repayments reduce as a share of take-home pay, although the trend was temporarily reversed between mid-1988 and mid-1990 due to rising mortgage rates.

But even taking this into account, after just seven years, the burden of mortgage payments would still have halved.

By contrast, it would take 20 years for someone who took out a mortgage at the end of last year to see the proportion of their take-home pay that was needed to pay their mortgage halve, due to slower income growth.

The report said the initial mortgage payment was now a more lasting burden on households' finances than in the past.

And clearly these people know what is going to happen over the next 20 years? That inflation won't rise?
No. Clearly they are just using current conditions. Clearly everything is bound to stay the same for the next two decades. Oh such forsight.

Obviously with such forsight these people will not be writing for much longer but making themselves rich instead with next weeks lottery numbers.

Turnbull2000

JonnyBravo wrote: »

And clearly these people know what is going to happen over the next 20 years? That inflation won't rise?
No. Clearly they are just using current conditions. Clearly everything is bound to stay the same for the next two decades. Oh such forsight.

Obviously with such forsight these people will not be writing for much longer but making themselves rich instead with next weeks lottery numbers.

Wow, deja vu. Wasn't this the basis for no crash, but perpetually rising prices?

The scope for an earnings inflationary spiral has been very much reduced due to the global economy. Whilst the West stagnates (our quality of life and disposable income reduces) the lesser developed nations will play catch-up. Do you disagree with this?