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Interesting Article From 2000

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Was doing a bit of research after the bull argument of "this isn't 1989 again, we've not got 15% interest rates, there's not going to be a crash" type thing.

Ok, from the article;

Unfortunately the best examples I can find are based on London figures, however average London salary in 1990 was about 17,500. Property price of about 135k. So assuming a new mortgage was taken out at that time, repayments over 25 years would be 1500 pcm, or just over 100% of average gross salary.

Today we have an average salary of 22k nationally, but in London, the average is 31k (Guraniad Salaries), and an average 2005 greater London property price of 295k roughly. (BBC Prices)

So, again assuming that we have a 25 year mortgage and using todays interest rates of about 5.5%, that would represent something slightly over 1800 pcm. Or, on a salary of 31k average about 70% of gross pay.

So, on the surface the bulls would appear to be correct (given the figures that I have available to me). However, we've forgotten one key fact of buying property in 1990 - tax relief. The average cost per 100 pounds mortgage with basic rate tax payers was 75 pounds. (Tax relief). So, due to this the 1990 figures now become approximately 75% of gross income in terms of mortgage payments.

So over the last 15 years we have not only managed to get ourselves into another bubble, but we're (if history is repeated) at the point of crisis at a mere 4.5% BoE base rate.

Heaven help us if the interest rates hit 13% - half the nation would be bankrupt.

NOTE: Anyone who is actually good at analysis please feel free to shoot the above down in flames....

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BBC News

Was doing a bit of research after the bull argument of "this isn't 1989 again, we've not got 15% interest rates, there's not going to be a crash" type thing.

Ok, from the article;

Unfortunately the best examples I can find are based on London figures, however average London salary in 1990 was about 17,500.  Property price of about 135k.  So assuming a new mortgage was taken out at that time, repayments over 25 years would be 1500 pcm, or just over 100% of average gross salary.

So, again assuming that we have a 25 year mortgage and using todays interest rates of about 5.5%, that would represent something slightly over 1800 pcm.  Or, on a salary of 31k average about 70% of gross pay.

So, on the surface the bulls would appear to be correct (given the figures that I have available to me). 

NOTE:  Anyone who is actually good at analysis please feel free to shoot the above down in flames....

I don't quite get this. I get around what you suggested as the average wage. Forget about gross. The interest cost you are suggesting is very close to what I get in my paypacket. Please advise. Are you suggesting a starvation diet?

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How meaningful is it to assume that anyone who buys an "average" house has no equity? You'd have to look at average equity then and now to take anything from this comparison as FTB have never bought an "average priced house"

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How meaningful is it to assume that anyone who buys an "average" house has no equity? You'd have to look at average equity then and now to take anything from this comparison as FTB have never bought an "average priced house"

I would have thought that since personal debt (unsecured) is so much more now than it was then if you include equity then and now the figures would appear much, much worse.

So I think assuming equity then and now as the same is fair in order to simplify the argument (and be a little on the safe side).

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I would have thought that since personal debt (unsecured) is so much more now than it was then if you include equity then and now the figures would appear much, much worse.

So I think assuming equity then and now as the same is fair in order to simplify the argument (and be a little on the safe side).

Also it is a recorded phenomena that first time buyers are borrowing like mad from relatives to find the deposit (and have even been encouraged to do so by some media articles), suggesting that this group do not actually have the sort of equity that is even close to neccessary.

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I would have thought that since personal debt (unsecured) is so much more now than it was then if you include equity then and now the figures would appear much, much worse.

So I think assuming equity then and now as the same is fair in order to simplify the argument (and be a little on the safe side).

I just think that you have to make so many assumptions, that it really makes it impossible to have a valid comparison. No-one on 17k would've bought a £135k house in 1989 - such a house would be never have been a first time buy. I don't believe that many people have a 100% mortgage on an "average priced property" so it seems unhelpful to assume that they do.

I know from a personal point of view, that a mortgage 3.5 times my wage now is much more managable than a mortgage of 2.3 times my wage which I had 10 years ago. This is because I no longer need a 100% mortgage and so am paying 3.9% rather than 8.0% interest rates.

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Reading the article and others linked to it shows how peoples memories change.

In 200 people were worried about house prices rising too much incase they got out of control, the articles seem to be reasonable honest and there are even call for interest rates to be put up to stop house prices rising. The general feeling shows that everyone can remember the last crash of 10 years before and the effects that lasted until 5 years before.

In the last 5 years everyone has forgotten both the crash and the effects, the press dont reflect reality and everyone is making excuses about why prices will be sustained at this level.

No, actually an amendment to the end of the last sentence (I have just remembered Krusty) ...prices will go up another 78% in the next 5 years.

So in 5 years time a first time buyer in London earning £25k will need to save up £100k for the deposit (easy enough with the lottery) and then still need an 8 time mortgage.

Incredible!!!!!

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I know from a personal point of view, that a mortgage 3.5 times my wage now is much more managable than a mortgage of 2.3 times my wage which I had 10 years ago.  This is because I no longer need a 100% mortgage and so am paying 3.9% rather than 8.0% interest rates.

This just reflects your improved financial situation and the money you have accumulated over the last 10 years. You should be saying suppose I was 10 years younger and had a modern equivalent amount of money to put down as a deposit - Would I be better off?

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In the last 5 years everyone has forgotten both the crash and the effects, the press dont reflect reality and everyone is making excuses about why prices will be sustained at this level.

I totally agree with that assessment, digging through the BBC's archives the property stories looked sensible and balanced around that era.

These days the media all seemed to believe the line that we will have a soft-landing and that the small matter of FTBs being priced out almost completely means that property prices will soft-land.

Many of the articles I'm reading about the housing market often make me need a sick-bag on standby.

House prices are a national disgrace.

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Today we have an average salary of 22k nationally, but in London, the average is 31k (Guraniad Salaries), and an average 2005 greater London property price of 295k roughly.

Hrm, is that before or after tax? ;)

Remember, the average London salary is now right on the 40% threshold, given a couple of years of fiscal drag it will exceed it, which will essentially mean a cut in income in real terms unless they receive a hefty wallop to compensate.

A base rate of 6% would probably cause a significant number of those who bought or MEW'd over the last couple of years to default.

What was the justification for 3.5% rates? They even had to change from RPI to CPI in 2003 justify it on paper. I can only imagine it was a case of keeping the currencies balanced by following the US fiscal policy of 'neutral rates'.

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I know from a personal point of view, that a mortgage 3.5 times my wage now is much more managable than a mortgage of 2.3 times my wage which I had 10 years ago.  This is because I no longer need a 100% mortgage and so am paying 3.9% rather than 8.0% interest rates.

Hrm, people forget when they talk about "awful 8-10% interest rates" that inflation was also high, so in actual fact those rates may not be so dissimilar to today's rates in real terms, also all that lovely inflation eroded your debt back then.

What's better, 2% inflation with 5% rates or 8% inflation with 10% rates? <_<

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"No-one on 17k would've bought a £135k house in 1989 - such a house would be never have been a first time buy. I don't believe that many people have a 100% mortgage on an "average priced property" so it seems unhelpful to assume that they do." Agreed, but Freefall is simply using these figures as a comparator.

"I know from a personal point of view, that a mortgage 3.5 times my wage now is much more managable than a mortgage of 2.3 times my wage which I had 10 years ago. This is because I no longer need a 100% mortgage and so am paying 3.9% rather than 8.0% interest rates". A great number of people who bought their family home pre- 1999 are a lot better off, at least in the short term, from low interest rates. This is not the case for first time buyers or those wanting to trade up.

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You can talk this one to death with figures and it still won't mean anything.

Surely it is simple.

Q. Can average young person get on the property ladder? Or couple?

A. No - average age of FTBs now 34 - number of FTBs at all time low.

Q. Is property still rising in value - encouraging speculators to buy to replace FTBs?

A. No

Q. Is there now an emerging consensus that property is overvalued i.e. unaffordable and must come down in price?

A. Yes

Q. Once property starts falling, what will stop it?

A. When it becomes generally affordable again for FTBs - until then the market will continue to slide and speculators will stay away.

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How meaningful is it to assume that anyone who buys an "average" house has no equity? You'd have to look at average equity then and now to take anything from this comparison as FTB have never bought an "average priced house"

I agree. Historically the average priced house was bought by a dual-income average wage family when they were between half way and full way up the property ladder (depending on how good their salaries were). These days FTB singletons seem to expect to be able to afford an average house. Forget it.

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I agree. Historically the average priced house was bought by a dual-income average wage family when they were between half way and full way up the property ladder (depending on how good their salaries were). These days FTB singletons seem to expect to be able to afford an average house. Forget it.

Ah yes but someone on an average income should be able to buy an average house.

And now they can't.

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  • 301 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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