[Shotoflight]

The car insurance story and all the utility price increases got me thinking about affordability. As well as that, my car Insurance is up, car tax is due and it cost me £81 to put 60 litres of petrol in the motor this morning. I need 900 litres of heating oil within the next month, to boot.

Anyhoo, lets try a little back of the fag packet budget for Mr. & Mrs. (or shacked up) Average and 2 sprogs. Some like to use the dual income model when assessing affordability. I will leave Incomes to the end. The calculations will be rough and ready and include assumptions and averages, so massive amounts of room for arguments – I also aim to err on the conservative side. But that is not the purpose. The purpose is that you recognise much of what follows, not necessarily all, and are able to take a pragmatic view of the current situation.

So, first some assumptions – sprogs at school – one boy one girl. Two parents working. ‘Only’ one car. £135k mort off £150k. Had £15k deposit. 3% rate = £640pm repayment. House fully furnished and decorated – all large items paid for and relatively reliable.

No Sky, No debt (credit card/personal loan), nothing beginning with an I (pad/phone/pod/pad), No football shirts, PS3 games, Blu rays, princess outfits. No job loss insurance, no mortgage insurance, No private pension, No charitable giving, no money put away for saving or emergencies, no pets. No Christmas, Birthdays or Anniversaries. Wedding paid off years ago.

Might have Expenses – all Monthly

Child care Granny £0 Creche £200
Car Loan Average £200?
Holiday (£1,000 for 4) £80

Essential Expenses

Mort £640
Bldg & Contents Ins £20
Food £320
Clothes £100
Electric/oil/gas £80
TV licence/Line Rental/Internet £35
Mobile phones x2 £30

Car Ins £75
Car Tax £15
Car Maint (tyres/service/MOT) £40
Car Fuel (social & work) £100
Social Life (fags/booze/mags/papers/bet/eat out/cinema/swim/zoo) £100
School x 2 (Lunch £3 daily, uniform, shoes, trips) £150
Work x 2 (clothes, odd lunch, coffee) say less than £2 daily £80

Ocassional expenses (replacement/upgrade TV/PC etc) £40

House maint internal/external, furniture, decorating £50

I make that a conservative £1825 expenditure, post tax joint income, before a car loan, holiday, child care or any other debt – Student, credit card or personal loan. Which I think is unrealistic. And look at all the other exclusions to get here.
A car loan, holiday and childcare put this to £2,300 per month without any other debt, frivolities or, dare I say it, luxuries.

Now here’s the thing – a 4% rise in interest rates ups the mortgage to £954, an increase of £315 per month making £2615.

Inflation is 5%, there is little sign of wage inflation and job security is tight. Imagine if one or both lose jobs.

Mr and Mr average, in an average house on average (dual) household income.

On the edge.

This post has been edited by Shotoflight: 31 August 2011 - 05:19 PM

[DotBomb]

everyday i hear stories of people doing what they can to avoid these rising costs or getting new income. Ive heard of scams to smuggle cigarettes, to claiming from old employers on old injuries to collecting firewood like an obsession. The struggle can be seen everywhere.

[Mr. Piddle]

Shotoflight, on 31 August 2011 - 03:39 PM, said:

The car insurance story and all the utility price increases got me thinking about affordability. As well as that, my car Insurance is up, car tax is due and it cost me £81 to put 60 litres of petrol in the motor this morning. I need 900 litres of heating oil within the next month, to boot.

Anyhoo, lets try a little back of the fag packet budget for Mr. & Mrs. (or shacked up) Average and 2 sprogs. Some like to use the dual income model when assessing affordability. I will leave Incomes to the end. The calculations will be rough and ready and include assumptions and averages, so massive amounts of room for arguments – I also aim to err on the conservative side. But that is not the purpose. The purpose is that you recognise much of what follows, not necessarily all, and are able to take a pragmatic view of the current situation.

So, first some assumptions – sprogs at school – one boy one girl. Two parents working. ‘Only’ one car. £135k mort off £150k. Had £15k deposit. 3% rate = £640pm repayment. House fully furnished and decorated – all large items paid for and relatively reliable.

No Sky, No debt (credit card/personal loan), nothing beginning with an I (pad/phone/pod/pad), No football shirts, PS3 games, princess outfits. No job loss insurance, no mortgage insurance, No private pension, No charitable giving, no money put away for saving or emergencies, no pets.

Might have Expenses – all Monthly

Child care Granny £0 Creche £200
Car Loan Average £200?
Holiday (£1,000 for 4) £80

Essential Expenses

Mort £640
Bldg & Contents Ins £20
Food £320
Clothes £100
Electric/oil/gas £80
TV licence/Line Rental/Internet £35
Mobile phones x2 £30

Car Ins £75
Car Tax £15
Car Maint (tyres/service/MOT) £40
Car Fuel (social & work) £100
Social Life (fags/booze/mags/papers/bet/eat out/cinema/swim/zoo) £100
School x 2 (Lunch £3 daily, uniform, shoes, trips) £150
Work x 2 (clothes, odd lunch, coffee) say less than £2 daily £80

Ocassional expenses (replacement/upgrade TV/PC etc) £40

House maint internal/external, furniture, decorating £50

I make that a conservative £1825 post tax joint income before a car loan, holiday, child care or any other debt – Student, credit card or personal loan. Which I think is unrealistic. And look at all the other exclusions to get here.
A car loan, holiday and childcare put this to £2,300 per month without any other debt, frivolities or, dare I say it, luxuries.

Now here’s the thing – a 4% rise in interest rates ups the mortgage to £954, an increase of £315 per month making £2615.

Inflation is 5%, there is little sign of wage inflation and job security is tight. Imagine if one or both lose jobs.

Mr and Mr average, in an average house on average (dual) household income.

On the edge.

Is anyone still wondering why most prefer to stay jobless and live in social housing? More free time to play with the kids and no need to worry about any of the above.

But seriously, the above sounds about right, and it is a struggle for the average.

[SPADER]

I make that a conservative £1825 post tax joint income before a car loan, holiday, child care or any other debt – Student, credit card or personal loan. Which I think is unrealistic.



Even if average couple were both only earning minimum wage, if they were working 38 hours per week their joint income after tax would be £1730 a month, only £95 short of your conservative figure.

Oh yes, having 2 kids would result in child benefit figure of £130 a month, not even taking into account family tax credits.

So the MINIMUM a family with 2 kids, both parents working fulltime would bring in would be £1860 a month.

[Si1]

Shotoflight, on 31 August 2011 - 03:39 PM, said:

Essential Expenses

Mort £640 would guess rent a bit less - can go for smaller house anyway in knowledge you don't need to future proof it, save rental £50
Bldg & Contents Ins £20 can avoid as renter, save £20
Food £320
Clothes £100 eh??, save £50 by being tight
Electric/oil/gas £80
TV licence/Line Rental/Internet £35
Mobile phones x2 £30 should go PAYG, save loads, say £10 saved

Car Ins £75 £expensive, get low ins car, save £25
Car Tax £15 get a low tax band car, save £12 per mnth ins
Car Maint (tyres/service/MOT) £40
Car Fuel (social & work) £100
Social Life (fags/booze/mags/papers/bet/eat out/cinema/swim/zoo) £100
School x 2 (Lunch £3 daily, uniform, shoes, trips) £150
Work x 2 (clothes, odd lunch, coffee) say less than £2 daily £80

Ocassional expenses (replacement/upgrade TV/PC etc) £40

House maint internal/external, furniture, decorating £50; save £10 for renter as no maintenance costs

so a frugal renter in the same scenario saves roughly 50+20+50+10+25+12+10 = £177 per month

[Gone to Ireland.]

Don't forget the 38Hours x 2 x 4weeks x £6.08 (from oct) = £1848.32 BEFORE tax + child benefit figure of £130 (no tax)

Just goes to show that a mortgage is the least of peoples worrys, all we need is a steady 5% inflating for the next couple of years coupled with no / low pay rises. should do the job nicely.

Well done Merv.

[Gone to Ireland.]

FYI The minimum wage only goes up 2.5% when we have 5% inflation, go figure

Benefits beat minimum wages
Housing benefit goes up by 3.1%
The majority of working age benefits will increase by 3.1 per cent.including JSA and pensions.

[Shotoflight]

Average car insurance in NI £920. 84% higher than UK

http://www.bbc.co.uk...reland-14731015

The point I'm making is that most of the above costs are necessary and indeed frugal, hence some averaging. Of course I'm leaving myself wide open for a kicking on this so don't intend to argue. Costs can be saved of course but what I'm suggesting is that it takes a large chunk of income to 'survive' and a lot of it is inescapable.

Glad to see it provoking some thought, so thanks.

Moving on,

Lets up the ante here a bit

Perhaps they have 2 smartphones
PS3 console & games for treats
A WII for the girl & they both want mobiles
A holiday costing more than £250 each for a change
Birthday's, Christmas, Anniversaries even going to someone elses wedding
2 cars - why not, plenty seem to manage
Some debt servicing - credit card/student
What wee boy doesn't have a football shirt. Tickets for a game.
Take send the wife to Take That
Pet food for the mutt
A dirty weekend if you are lucky!

And then there's the divorce or job loss

[miko]

This thread is looking like an S.O.A. thats ( Statment of affairs) , posted on the bankruptacy threads on MSE .

Every one has different spends and commitments some say spend less here / more there , cut this out add this in .

However from what im seeing , hearing and feeling myself people are struggling . The money coming in is not going up the essential costs going out are rising very fast and people are struggling.

I look at a handfull of £20 notes and they mean nothing they evaporate from the pockets very quickly . It reminds me of going on holiday to Spain 30 years ago when people sneered at the paper money calling it MICKY MOUSE money . It looked a lot but meant nothing as the spending power was little our own money is now like this.

[lolacarrascal]

Shotoflight, on 31 August 2011 - 03:39 PM, said:

The car insurance story and all the utility price increases got me thinking about affordability. As well as that, my car Insurance is up, car tax is due and it cost me £81 to put 60 litres of petrol in the motor this morning. I need 900 litres of heating oil within the next month, to boot.

Anyhoo, lets try a little back of the fag packet budget for Mr. & Mrs. (or shacked up) Average and 2 sprogs. Some like to use the dual income model when assessing affordability. I will leave Incomes to the end. The calculations will be rough and ready and include assumptions and averages, so massive amounts of room for arguments – I also aim to err on the conservative side. But that is not the purpose. The purpose is that you recognise much of what follows, not necessarily all, and are able to take a pragmatic view of the current situation.

So, first some assumptions – sprogs at school – one boy one girl. Two parents working. ‘Only’ one car. £135k mort off £150k. Had £15k deposit. 3% rate = £640pm repayment. House fully furnished and decorated – all large items paid for and relatively reliable.

No Sky, No debt (credit card/personal loan), nothing beginning with an I (pad/phone/pod/pad), No football shirts, PS3 games, Blu rays, princess outfits. No job loss insurance, no mortgage insurance, No private pension, No charitable giving, no money put away for saving or emergencies, no pets. No Christmas, Birthdays or Anniversaries. Wedding paid off years ago.

Might have Expenses – all Monthly

Child care Granny £0 Creche £200
Car Loan Average £200?
Holiday (£1,000 for 4) £80

Essential Expenses

Mort £640
Bldg & Contents Ins £20
Food £320
Clothes £100
Electric/oil/gas £80
TV licence/Line Rental/Internet £35
Mobile phones x2 £30

Car Ins £75
Car Tax £15
Car Maint (tyres/service/MOT) £40
Car Fuel (social & work) £100
Social Life (fags/booze/mags/papers/bet/eat out/cinema/swim/zoo) £100
School x 2 (Lunch £3 daily, uniform, shoes, trips) £150
Work x 2 (clothes, odd lunch, coffee) say less than £2 daily £80

Ocassional expenses (replacement/upgrade TV/PC etc) £40

House maint internal/external, furniture, decorating £50

I make that a conservative £1825 expenditure, post tax joint income, before a car loan, holiday, child care or any other debt – Student, credit card or personal loan. Which I think is unrealistic. And look at all the other exclusions to get here.
A car loan, holiday and childcare put this to £2,300 per month without any other debt, frivolities or, dare I say it, luxuries.

Now here’s the thing – a 4% rise in interest rates ups the mortgage to £954, an increase of £315 per month making £2615.

Inflation is 5%, there is little sign of wage inflation and job security is tight. Imagine if one or both lose jobs.

Mr and Mr average, in an average house on average (dual) household income.

On the edge.

Good thread - liking the analysis. Some realism for a change and bringing the 'affordability' debate into real life context.

Havings kids is the expensive bit. At least with the mortage the proportion of salary needed to service the cost generally diminshes with time through inflation. Some of us more mature posters will know that the opposite applies to kids and the growth in costs seems to be exponential as they progress through the teenage years!

All this realism can get very sobering at times - no wonder 'extend and pretend' is so popular.

[Shotoflight]

lolacarrascal, on 31 August 2011 - 06:42 PM, said:

Good thread - liking the analysis. Some realism for a change and bringing the 'affordability' debate into real life context.

Havings kids is the expensive bit. At least with the mortage the proportion of salary needed to service the cost generally diminshes with time through inflation. Some of us more mature posters will know that the opposite applies to kids and the growth in costs seems to be exponential as they progress through the teenage years!

All this realism can get very sobering at times - no wonder 'extend and pretend' is so popular.

My feeling is that many people don't (can't) face this reality until it is (or is almost) too late because a) it is unpleasant and b ) they don't have to. It could be skirted around (or ignored) in the boom times, because boom time would continue and there would be no bust. And there was always another source of cheap debt.

I only figured out the exact ins and outs of my mortgage a few years ago alongside some other budgetary home truths. Complacency was my (inexcusable) excuse. I'm as guilty as most, in that respect.

Work all the above out with the average house at £250k, as it was a few years ago, and you start get a sense of the financial issues some people may be experiencing.

The (more responsible) banks are making mortgage applicants go through the above process and have been for some time. Affordability calculations really do help to manage expectations. This is feeding through to house sales and, more importantly, house prices.

Remember - the initial premise/scenario is a 'no debt' situation, which may not be average at all.

This post has been edited by Shotoflight: 31 August 2011 - 07:36 PM

[lolacarrascal]

Shotoflight, on 31 August 2011 - 07:20 PM, said:

My feeling is that many people don't (can't) face this reality until it is (or is almost) too late because a) it is unpleasant and b ) they don't have to. It could be skirted around (or ignored) in the boom times, because boom time would continue and there would be no bust. And there was always another source of cheap debt.

I only figured out the exact ins and outs of my mortgage a few years ago alongside some other budgetary home truths. Complacency was my (inexcusable) excuse. I'm as guilty as most, in that respect.

Work all the above out with the average house at £250k, as it was a few years ago, and you start get a sense of the financial issues some people may be experiencing.

The (more responsible) banks are making mortgage applicants go through the above process and have been for some time. Affordability calculations really do help to manage expectations. This is feeding through to house sales and, more importantly, house prices.

Remember - the initial premise/scenario is a 'no debt' situation, which may not be average at all.

All of this reinforces my view that 'affordability' is the only game in town now and will be the great house price leveller, whether that happens by wage inflation or house price deflation or a combination of both.

[Shotoflight]

Of some relevance - UK. I'm sure it's on the main thread - apologies if a double post.


http://www.telegraph...-your-home.html

More than 30,000 home owners will be told to spend less on nights out, Sky television, gym membership and mobile phones so they can concentrate on paying back their mortgage.

Experts said that while it was normal practice for banks to embark on credit checks on customers it was unprecedented for so many families to be targeted after their mortgage had been approved.

“Some people won’t cope when interest rates rise, but for others there are remedies,” said Richard Banks, the AKAR chief executive who is a former director of Alliance & Leicester.

“They need to think about what is their most important debt. It is not their credit card or renewing their Sky subscription, or going out for the latest mobile technology. It is their mortgage.

It is estimated that a one percentage point rise in interest rates will reduce the disposable income available to each UK household by £230 a year.

UKAR wants to ensure that borrowers have enough money to pay off their mortgages rather than spend their disposable incomes on lifestyle or luxury items.

[Si1]

Shotoflight, on 31 August 2011 - 07:20 PM, said:

Complacency was my (inexcusable) excuse. I'm as guilty as most, in that respect.

had a similar epiphany myself 10 years ago!

normal part of growing up...

[tinbin]

I'm glad to see this thread ... this is exactly the type of point that I try to make around affordability.

EA's, House sellers and all other VI's just don't understand this ... the reason being that they don't have to. But it becomes incredibly frustrating when they bleat on about houses never being so affordable, best time to buy and talk about markets bottoming out when they don't understand, nor consider just what impact house prices have on the lifestyle of the joe public. The affordability argument is regularly manipulated by comparing it to 2007 prices ... almost 50% down ... whoop-di-doo ... lets all run out and celebrate. Compared to 2000 they are still shockingly high. Are asking prices 50% down - hell no!

There was an article posted on here a while back highlighting that the younger generation would need to be earning the equivalent of 4 times what their parents earned in order to enjoy the same sort of lifestyle. Whilst I am not suggesting that our parents had bags full of money that they slept in each night it is a fair (and worrying) comparison to make when you drill down the facts and figures.

Most vendors need to wake up and realise that they do not have the right to demand such ridiculous sums of money for their homes. There really is no logic to the argument other than them clinging onto the argument that prices only ever go up and therefore resisting all drops with great ferocity on the way down because its not the perceived norm and must be a blip. I still hear the odd comment about when house prices start to rise again and it makes me want to scream when I hear this. Are ppl really that stupid that they think that there is no ceiling to what prices can rise to???? If that is the case then where does it all end ... when no-one can afford them?? If wage inflation was rising at the same rate then fair enough but its not, and it has really been wage deflation for the last 5 years. There is so much more to the housing market than just supply and demand (EA's logic) ... it may well play a part but affordability is the biggy.

Income to Price ratio's for affordability can vary between banks, but the long term average is around 3.5 for a reason - its based on evidence of sustainable mortgage lending, simple as that. Chuck in the fact that the cost of living is constantly rising, coupled with interest rate rises at some point and you may find that this average reduces in the future. I don't believe that Banks just pluck the figures on what to base this on out of the air ... they obviously consider what is sustainable. They clearly stopped using this during the peak and look what happened. It is worth remembering that this is only a guide, the bank will complete an application considering all of your income against your outgoings and if there isn't sufficient disposable income to support the loan then it won't be approved. This is what we are seeing more and more of ... open your eyes and see it for what it is. MTG's are being declined due to lack of affordability ... if they stack up they will be approved, but dont kids yourself that they are being approved for Mr & Mrs Average because for the most part they are not.

Shotoflight had a good stab at a breakdown of monthlt costs and i'm struggling to see whether ppl agreed or disagreed with it on first read over the posts. I would say it is prob on the light side for outgoings

A few extra points that I would add would be that because the loans for MTGs are higher now the cost to fully protect these loans is higher and ppl would be paying on average £50 on top just to get life & critical illness cover for it. Very few ppl have no debt and the hangover from the credit card balance transfer years still remains with many paying out £100's on minimum payments each month with massive outstanding balances. Very few can afford to save for Christmas so they instead use credit cards, store cards, club books, credit unions ... they all have to be paid back. Its scary to think just how many ppl are still living off debt ... robbing peter to pay paul. There has been plenty of articles from various bodies backing this up.

The key point made however is that households are now dependant on 2 incomes to sustain the current mortgage repayments for an average house. This clearly can not be supported long term. If and when people start to have kids ... which they will - it will not be sustainable for them. Its a timebomb waiting to go off. I would like to think that ppl still value having a family over having a big home ... maybe not??

Child care costs are horrendous and im speaking from experience. This is the biggest killer of all. A full time nursery costs in the region of £750 per month PER CHILD. Unless you have a granny who is prepared to mind your kids for free them you are up the creek without a paddle.

Time to wake up and smell the coffee.

This post has been edited by tinbin: 01 September 2011 - 01:34 PM