Another Tory Loon?

Theres a certain irony that the banking deregulation Thatcher unleashed on us all has actually ended up completely destroying her professed aim of ‘home-owning democracy’

How the **** a graduate paying off £35,000 plus of tuition debt, while presumably renting, is going to save the 20% deposit required to get on the property ladder?

How the hell is that going to work?

Anyone talking out a 100% mogrtgage is an idiot

Is that perhaps a bit of a sweeping statement?

Depends on the person, a doctor or solicitor is likely to be fine doing that. Actually I’m not even sure why 100% is a problem for the buyer – for the lender for sure but, as I say, fine to lend to some professionals.

On the other hand multiples are a different matter though young professionals are pretty safe for high multiples as in secure jobs with large salary rises ahead.

For me, I borrowed over 4 times salary and did very well – nice house and no mortgage due to taking what some would consider to be risks.

To have bailed them out means , in the future, they can be as reckless as the govt/people will bale them out. In essence we have put them in the position of being irresponsible children who have mummy and daddy to bale them out when they **** up whilst they pick up bonuses for their expertise.it is a no loose situation and that will have consequences in future reckless behaviour

Actually junky – I’d go a step further than that.

Its not the banks being irresponsible with their own money, its the banks being irresponsible with depositors money, and they also have to take their share of the blame as well.

Lets say that I, as a saver, have the choice of four banks to put my savings into:

a mutual building society, offering me a 3% interest
a well known high street bank offering me 4% interest
an up and coming new bank, offering me a 5% interest (but also offering 100% mortgages at 5x salary)
an Icelandic bank offering me 7% interest

Which one do you think carries the biggest risk?

Oh, that’ll be none of them, because the taxpayer bails me out if the bank goes bust, ace, guess where my money’s going then, Kerching!

Take away that last element, take away the security and put the risk back, and where do you now think I’ll invest my money.

Thats why I’m a right wing free market nutter – because I think thats the only way it can work, risk, its the essential controlling factor of capitalism –

I think that the depositors are ultimatley responsible for the actions of the bank, as without the deposits, the bank cannot lend the money irresponsibly – and thats why they should have lost it.

That only works if they are lending money held in deposits, as we know, that wasn’t and isn’t the case.

How the **** a graduate paying off £35,000 plus of tuition debt, while presumably renting, is going to save the 20% deposit required to get on the property ladder?

How the hell is that going to work?

a graduate lucky enough to earn… say… £23k (?) will be paying back £17/month, man that ‘tuition debt’ will be crippling…

That’s another thing to add to the North/South divide then, as it’s not the case down here.

1 bed flat, value £220,000
Rent £750 month
Mortgage at 90% LTV, 30 years, interest only at 4.5%, £825 month

so even with 10% deposit renting is cheaper.

Really? You’re assuming no rent increases in that, which is unlikely over a 30-year period.. Although interest rates on a mortgage can and and do vary, they’re tied to a capital cost that you’ve fixed now. Any wage inflation over the period will very quickly reduce the effective cost of the mortgage.

And, of course, you’ve got the property at the end, which you clearly never will when renting.

so assuming they never get a pay rise it will take the student 170 years to pay off?

its a funny kind of capitalism that city people have (ones i know anyway) who would describe themselves as rabid capitalists expect the state to bail their employers out when it all goes tits up!

so assuming they never get a pay rise it will take the student 170 years to pay off?

yes.

but the debt is cancelled after 30 years.

assuming no pay rises above inflation the graduate will have payed back £6000 – not a bad deal for 3 or more years of education, accomodation, entertainment… etc.

anyway, you can buy a nice little house at the nice end of town for £120,000 around here. a 20% deposit would be £24,000 – which is a lot, but not unachievable for a thrifty couple with a little help from the bankofmumndad…

edit: see below…

Academic really. The main point still applies. How are you meant to save a 20% deposit while paying the present market rate for rents. Its going to be virtually impossible

Average house price in the UK is now £228,385. So you’ll need to put away £45,000. All while paying rent at full market rate. Presuming you may want to eat occasionally. And may have the other odd overhead.

How much are you going to have to earn to do that? And how longs it going to take

I don’t see how the myth of ever-rising house prices can be sustained any further. In a country where everyone’s incomes are being squeezed, the present price of housing is ludicrous!

Average house price in the UK is now £228,385. So you’ll need to put away £45,000

How many 1st timers get an average house? How much are one bed flats or studios?

the present price of housing is ludicrous!

you’re right, it is.

but, you can buy a nice little house at the nice end of town for £120,000 around here. a 20% deposit would be £24,000 – which is a lot, but not unachievable for a thrifty couple with a little help from the bankofmumndad…

and while there are plenty of thrifty couples, who have a little help from mumndad, nice little houses at the nice end of town will sell for at least £120,000

And how much is a 1 bedroom flat? You’ll still be looking at what? A minimum of £20,000 deposit.

I just don’t see how, with increased living costs, stagnant salaries in a flat-lining economy, 40% graduate unemployment, unpaid internships as the only way into work, that some morons are still thinking that an economy based on ever-rising house prices is going to re-emerge

It isn’t! And do we want it too? Seriously? Time to look to something with a bit more substance to generate wealth that exists in reality, as opposed to on the deeds to property

Really? You’re assuming no rent increases in that, which is unlikely over a 30-year period.. Although interest rates on a mortgage can and and do vary, they’re tied to a capital cost that you’ve fixed now. Any wage inflation over the period will very quickly reduce the effective cost of the mortgage

Of-course. That wasn’t in the original premise though. 🙂

are there any mortgages around with a 10% deposit at the moment?

having just got a new mortgage I can answer that. There are and 100% are also still available. Just don’t look at the interest rates, they’ll make you cry.

The most depressing thing about this thread is that to my horror I realise that I agree with something a Tory said.

A first and hopefully a last. Need to go and have a word with myself.

House prices reflect economic conditions, I wonder if any 1st time buyer has ever thought that prices seem cheap? I was lucky enough to be ready to buy in the mid-90s when people were starting to recover from the economic problems of the late 80s and early 90s; house prices had been falling and then they rose. And carried on rising on the whole. I remember people in 2000 thinking prices were too high, hope they eventually took the plunge.

I remember people in 2000 thinking prices were too high, hope they eventually took the plunge.

I remember a guy on here a few years ago proudly declaring he’d sold his house because there was going to be a massive crash in prices and everyone else was frankly an idiot as he’d be picking up our (repossessed) houses for a fraction of our mortagages. Don’t think that risk paid off.

And yes, I remember struggling for my first house many years ago.

There have been big changes though, the most considerable being the capital adequacy rules that banks must adhere to. (i.e. liquid assets as a ratio of liabilities) They’ve increased enormously.

This is still much lower than it was before deregulation 30 years ago.

I reckon there is a window here for a political party to run with the housing debate.

Its the single biggest worry people have, a day never goes by on here without someone bringing up the lack of affordable housing. Have to be tied up up with serious investment in high speed rail so that we can get building in say the Midlands yet let people commute to their place of work.

And it probably means a lot of us are going to live in low-rise apartment blocks. Thing is we all want a garden and a garage right? Have to be some clever architects and urban planners out there who have plans on the board for something attractive and sustainable and which doesnt cost the earth.

And it probably means a lot of us are going to live in low-rise apartment blocks.

It’s not so bad, its the common way to live round here, and most flats have similar floor areas to small UK houses.

My thoughts when the economic crisis hit was that investment in housing, rail and technology would have been a truer and more effective application of keynesian economics than bailing out the city.

In order of responsibility:

1. The political leadership and banks for creating the FSA, which was entirely toothless. They should have MADE the banks rein in their spending or influence SOMEONE to get it done.
2. Bank of England for being useless
3. Banks on their own for being idiots
4. The population who have gotten high on debt.
5. the Media for being complicit.

So he has a point, but it’s only one piece of the puzzle.

Agree with this.

It’s not often I would agree with a Tory politician, but on this occasion I would agree to some extent. Lots of people lived knowingly beyond their means, but the banks also lent to people who did not understand the implications of what they were signing up to. I pretty much agree with swedishmatt’s order of responsibility here. I do not agree that there should be no personal responsibility taken for bad financial decisions and people having lifestyles that were way above their means, using credit to finance luxuries.

breatheeasy – one of the Motley Fool writers, Cliff D’Arcy, talked a lot about prices crashing and did sell investing the proceeds in the stock market. He did it too early but was then very happy when prices did come down around 2008. I suppose it depends on where he lives but prices in many areas have recovered to close to their previous highs. Maybe he’s done well with his investments but stock prices are down from their highs – more so than property?

An article of his:
http://www.lovemoney.com/news/property-and-mortgages/buying-and-selling-property/205/property-versus-shares

mudshark – Member
House prices reflect economic conditions, I wonder if any 1st time buyer has ever thought that prices seem cheap? I was lucky enough to be ready to buy in the mid-90s when people were starting to recover from the economic problems of the late 80s and early 90s; house prices had been falling and then they rose. And carried on rising on the whole. I remember people in 2000 thinking prices were too high, hope they eventually took the plunge.

the problem is that there is so little free housing stock- its not like america where there are thousands of empty houses waiting for the economy to pick up, the council house sell off and teh low rate sof new house building means theres just no extra capacity so we are stuck in a loop of declining living standards and stagnating (or moderately decreasing) house prices

The problem is that the largest component of property prices is land. land is in finite supply, and for various reasons the demand for it is growing (i.e. more people, one parent families, buy to let, to name but a few). For that reason if there is limited supply and demand exceeds it then prices will inevitiably go up. However, the same is true in the event that the supply of money increases, i.e. loads of money = prices will readjust to the volume of money in circulation.

In short the people who will benefit most from policies that create increased demand for property and therefore money are the property owning and surprisingly the finance/banking types. No prizes for guessing who they are, and who’s mates generated said policies.

Bit flipping rich to then turn round and point the finger at someone else…….anyone at all else in fact.

The problem is that the largest component of property prices is land. land is in finite supply, and for various reasons the demand for it is growing (i.e. more people, one parent families, buy to let, to name but a few). For that reason if there is limited supply and demand exceeds it then prices will inevitably go up. However, the same is true in the event that the supply of money increases, i.e. loads of money = prices will readjust to the volume of money in circulation.

A few points adding to this – in no particular order

– as housing gets more expensive, people share more, so demand/supply isn’t as straightforward as x more people = x more houses = x more cost.
Two people living in 1 house have economies of scale that aren’t available to 2 single people in separate houses, so more single people mean less money is available for the purchase of housing.

If mortgages were outlawed, the cost of housing would fall massively.

Women joining the workforce in increasing numbers has also been counter-productive in this instance too. 1 Bloke could buy a family house, now it needs 2 (arguably 3 in many places) people’s wages to buy a family house..as women have entered the workplace everyone has become impoverished

Also – at the moment interest rates are at historic lows….they aren’t going to stay there forever…at some point they will whipsaw upwards. People who are able to pay when BoE is at 0.5% are going to struggle when it increases by 100% to 1.0% – buy the time interest rates have risen to 3 or 4% which is still historically very low carnage will be massive.

The way out of this for govt is to maintain rates low – ie by penalising those who have saved money to bail out those who have borrowed with no contingency for a rainy day.

The message this sends loud and clear to everybody is – don’t save.

To those just entering the economy it sends a subtly different message though ie – you are going to get taxed into oblivion throughout your life to pay to keep the generation above you in the big houses that they can’t afford, and this will ensure that the price of housing is maintained at an artificially high level which you will never be able to reach.

Emigrate or riot are the options available to that generation.

Speaking for my own area.. the problem isn’t a shortage of housing stock (there are whole new estates here crying out for buyers). The problem is that the prices asked are simply still too expensive.

Until the average house costs about the same as 3x earnings (as it used to be) then this mess wont get sorted.

The problem lies primarily with the banks who fear the effect lower property values would have to their balance sheets (They’d sooner hold on to repossessed stock and hold the values up than sell them at a lower price and take a hit).

They’d sooner hold on to repossessed stock and hold the values up than sell them at a lower price and take a hit

Where did you get that from? They certainly do auction property and I’m not aware of them holding onto stuff so curious. If developers or banks are holding onto stock then I assume they’re confident about prices picking up soon. I suppose with interest rates so low they might only sell if they need the cash in the short-term.

Until the average house costs about the same as 3x earnings (as it used to be) then this mess wont get sorted.

When were they last 3x earnings? Won’t happen and don’t see that it needs to drop anything like that either really.

how do you porpose for new buyers to enter the market then?
this is the real problem it is a house of cards/pyramid scheme and without new entrants prices will fall.
they may offer longer mortgages I guess to address this but if you cannot afford to buy a house you cannot afford to buy a house.
I think the average wage to buy the average house is circa x6 or 7 or earnings and that is a real problem

actually it is
£228,385 [2011
http://news.bbc.co.uk/1/shared/spl/hi/in_depth/uk_house_prices/html/houses.stm
mean average £26,020 or £31,323. if you just consider FT employee
Median is £20,801,or £25,123.
NB these are 2008 average salaries but i doubt they have gone up much if at all.

So it is pretty much x8 – 10 of salary. Even with two working FT it is still about x5 of median
http://news.bbc.co.uk/1/hi/8151355.stm

First time buyers usually buy entry-level properties then maybe move into average properties later. Anyway, the poorest get council houses or just rent so the average person who’s looking to buy earns more than the average of all adults. And also people generally have some sort of deposit.

I reckon there is a window here for a political party to run with the housing debate.

Unlikely.

The most active voters are those who are, or are nearing retirement: the baby boomers.

They are the ones – taken generationally – who have benefited most from rising house prices (turning housing from a place to live into an active form of investment).

To take on house prices – while it may benefit their kids – won’t get any support from them, as it’s the foundation of that generation’s collective wealth.

When the average of one is such a large factor of the other [greater than the mortgage calculator] it is clear there is a problem

First time buyers usually buy entry-level properties

but the price is prohibitive average earners now buy those properties

then maybe move into average properties later.

How ? They dont earn enough as the figures show

Anyway, the poorest get council houses or just rent so the average person who’s looking to buy earns more than the average of all adults.

because the average adult cannot afford to buy a house …see my points above about lack of entrants etc.
like much of capitalism the current position is not sustainable
How the market readjusts/crashes /finds equilibrium I dont know but i very much doubt it will be by higher wages.

We’ll never have everyone owning a property, it’s relatively high here compared to other European countries. The market does it’s thing, prices will always be at an appropriate level based on demand and supply; we have too much demand and too little supply so we can build or reduce the population somehow. Trouble is most demand is in the SE so will need to build on the green belt.

This is an excellent thread and very refreshing to see a conversation whereby people realise that high house prices are a bad thing. To me, house prices are the elephant in the room that politicians daren’t speak of, because the generation who have the most voting power don’t want to see their houses (or pensions as they see them) fall. Until mortgage lending is regulated to force house prices to fall, this country will remain uncompetitive. I read an analogy the other day, that said it is like being told that to fix a problem, you will have to have your legs broken. The alternative is that we will break the legs of all of your children. Currently we are opting to break the legs of our children….

Edit, spelling

Until mortgage lending is regulated to force house prices to fall

Not sure that would help but what would the regulation be like?

To me, house prices are the elephant in the room that politicians daren’t speak of, because the generation who have the most voting power don’t want to see their houses (or pensions as they see them) fall.

Is there an echo in here? 😀

(But I like your leg breaking analogy. Might use that with my in-laws whenever they’re going on about my generation’s financial failings.)

Of course it would help…. If people aren’t forced to spend such large amounts of money on accommodation, then you can either pay them less (making our businesses more competitive), or they have more money to spend in the wider economy (which will help growth), or we don’t need to send both parents in a family out to work to pay the mortgage (which has social benefits). Ideally, you would see a combination of these three benefits.

If the FSA grew some balls and limited banks to lending a maximum of 3x one salary, then overnight this would put a cap on house prices…. It is supply and demand of credit which drives house prices.

Mudshark…. Your comments seem to imply that you want house prices to be high… Is that the case or have I misunderstood you? If you are in favour of high prices, can I ask why?

Sorry omitn, I didn’t read your post before I posted! Great minds eh?

Your comments seem to imply that you want house prices to be high

Really? Can’t think what I’ve said that implies that. I’m realistic about the economy and the relatively capitalist society we live in. I’m not against market control if there’s a benefit and giving everyone a better quality of life is certainly a benefit worth striving for but I am unsure how much controlling mortgages can help. We have too many people who want to live in a small area of land. If we reduce house prices somehow then we increase demand so if house prices can’t go up we just have waiting lists. So we build more? Not so much land available to build on – in the SE certainly.

aye i have this debate with my folks. Why should i be saddled with higher pensions when they are the feckers living longer and they are the ones who have not paid enough to cover their retirement. They expect e to pay for mine and theirs and it will be even worse for my kids..naturally I say this by Skype whilst they sun themselves in portugal for the winter Apperently the holiday was cheaper than paying their heating bill…lets hope they make good use of the winter fuel payment eh.

we seem to ignire those who hve gained most and paid the least in all these issues but like you say these people have the sense to vote so are protected from actual politics.

Unfortunately no-one dared deal with the issues of the costs of our ageing population when it would have helped. Surely now the only way to stop our children suffering is to bite the bullet and sort out pension payments so that everyone pays a fair share? Too late to get anymore cash out of the oldies I suppose though maybe they’ll leave lots of cash for their kids – and the government in inheritance tax?