Spotted by Lola in MoneyAge:
Annual house price growth in the UK has risen to 13.4% in the year to June, the highest level since November 2004, according to the latest Nationwide House Price Index.
2004 was 17 years ago, so we are now on the final leg of the 18-year land price/credit boom-bust cycle, due to collapse again in 2025 or 2026.
“Despite the increase in house prices to new all-time highs, the typical mortgage payment is not high by historic standards compared to take home pay, largely because mortgage rates remain close to all-time lows – in fact, on this measure affordability remains broadly in line with its long run average. However, house prices are close to a record high relative to average incomes.
So buying a home is cheap but expensive?
"This is important because it makes it even harder for prospective first time buyers to raise a deposit. For example, a 10% deposit is over 50% of typical first time buyer’s income. A potential buyer earning the average wage and saving 15% of take home pay would now take five years to raise a 10% deposit.”
Well, duh. The flipside of affordable monthly payments is paying a massive deposit and vice versa. The bigger the deposit, the lower your monthly payments. Most people could afford the monthly payments for a £1 million home if they can stump up a £900,000 deposit.
Tuesday, 29 June 2021
Schrödinger's Housing - affordable and unaffordable at the same time
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14 comments:
Quite why he does not pick up that house prices are high BECAUSE of 'low' interest rates defeats me.
Also, there is the scam of how 'affordable' is defined, i.e. by reference to local sizes of mortgages and rents. The proles who are needed to serve the rest will not get a look into well-to-do areas, unless they sleep x to a room or endure a long commute.
L, that's the most obvious point.
S, agreed. Affordable is a crassly misused word.
FYI I own and run a retail FS business. The whole 'affordability' thing is bonkers. You're looking at some lenders using income ratios of 5 x and above. This is mad. It only 'works' whilst interest rates are 'wrong'. That is artificially low. Typically historic mortgage rates are in the range of 6% ish. +/- 1%. Earnings ratios were set at 3 x main income + 1 x second income. Maybe go to 3.5 + 1. That's 'safe'. We have dropped mortgage work, mostly. I am not taking part in this insanity. (Which is commercially daft BTW as the procuration fees aka commissions are generous. You always pay for your principles).
And just don't start me on equity release...
Not forgetting life time costs are massively higher now. A couple of generations ago, a £900 per month mortgage would diminish in real terms quite quickly and be paid off in 25 years or less.
Now, a £900 per month mortgage will barely deflate at all thanks to awful salary growth, and payment durations are being extended to 35 years or longer.
@L, 3x main income post all taxes?
"Well, duh. The flipside of affordable monthly payments is paying a massive deposit and vice versa."
There is that, but, even more duh, if low interest rates mean you can borrow up to five times your salary, then average house prices are going to be five times the average salary, but the deposit remains at the same percentage, so if the average house price is £200,000, then the average salary is £40,000 and the average 10% deposit is £20,000, or half the average salary. If you could only borrow three times your salary, then the average house price would be £120,000 and the average deposit would be £12,000 or 30% of the average salary.
L, he's not allowed to make that point, that's classified information.
B. Snort.
P.W. Traditionally 3 x gross. Very roughly all house ownership costs should not exceed one weeks income. That is mortgage payment. Building and contents insurance. Life insurance and council tax should not sum to > 1 weeks net income. That's my 'safe' ratio.
L, very decent of you.
TB, good point but it's worse than that. Back in the day, my parents and inflation combined could pay off the mortgage in ten or fifteen years. I paid mine off between 1998 and 2008.
B, another good point. For every layer of stupidity you peel away, there's another one underneath it.
Mark, that's a great concept, the Onion of Stupidity.
MW. It's not that 'decent' of me. Mortgage work is tiresome. People don't want a mortgage, they want a house. And not enough of them, as in hardly any of them, get troubled by borrowing squillions to buy a commodity house. Gone are the days when the average mortgage broker could actually make a difference (IMHO)
Plus there are those parents who take out an equity release scheme to give their children the deposit....double win for the banks.
B I have just been reading this https://www.fca.org.uk/publication/consultation/cp21-13.pdf
The 'onion of stupidity' is apt, but you'd need a whole peleton of French onion sellers to cover all of the stupidities.
This is what happens when people are no longer brought up to think ethics matter, idiots try to fill the gap with legislation. Of course it's going to fail, because those who don't care about ethics don't care about legislation either.
L, B, ethics is easy. Always ask yourself, how would it look if this came out in court?
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