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I backed off buying 10/11 years ago, things were going really well, money was good and had a decent deposit. But something was niggling me about what I could afford and the distance I had to travel in order to afford it. Now rightly or wrongly I made some judgements on what was going on around me and even what had happened in my own family, going back to my Gran and Grandad .I did my Google searches and studied why people had certain houses when their wages never matched mine even closely amongst other things, but what hit me the most was the subject of debt, months of work later and not just reading what I wanted to believe I formed a strong belief and thought I am going to sit this one out, and if there is a wait I will lead some kind of life in the meantime.

1. Personal debt... it staggered me when we were around the £1 Trillion mark, I think we are around £1.7 Trillion now(could be more) that's around £60,000 per houshold and baring in mind many people are debt free and even more have low debts, that means there are some big debts out there with some people.

2. Public debt.... That was also around £1 Trillion now up to £1.8 Trillion   https://nationaldebtclocks.org/debtclock/unitedkingdom

3, The Deficit.. Not saying much about this, It has slowed down quite a lot, and I think it's around 80% GDP, nothing that's has apparently "improved" this figure has impressed, more so how we got there, QE, interest rates, financial tinkering

Now around the 2008 crisis I thought there was no way the economy could handle this debt, to me it was a no brainer,  it was like having a toy ship on a pond and constantly topping it up with pennies, you go dozens, 100's and then 1000's and it keeps floating, but all it takes is that one last penny or that one big ripple in the pond and the whole lot sinks. Move onto 2018, wage growth has never really been a killer, on a personal note money is better now though I accept it isn't for many others which makes this more confusing.

My logic is still sound though my faith tested, are we getting close to that one last penny?

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I firmly believe that we're reaching the end of one massive, unsustainable economic model. We're also due another fat global recession and all the signs are there that this will be upon us soon.The question in my mind is whether the inevitable total collapse will hit with the next recession, or whether TPTB will manage to kick the can even further down the road..

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As far as I'm concerned, when someone buys a house their only method of pricing is to compare houses for sale and buy the best one they can afford. Nothing more sophisticated is realistically feasible. Sure a few outsiders like on this site think long term and play the long game but for most people that is a huge inconvenience to the flow of their lives (permanent home, especially to raise children) and a good portion would struggle to understand the long term issues.

So my point is, house prices are simply dictated by income and the availability of debt. At the moment, I would put forward as a rule of thumb that typically someone will be happy paying a third of their monthly income on a mortgage. With interest rates and inflation effectively negligible, you can do a noddy calculation: median household income of £27k so about £22k after tax, take a third of that over 30 years and you get about £220k, which is not miles off the median house price.

Now I've just pulled the one third out my **** and it happens to give a quite accurate estimate but let's not get hung up on that. Crucially I think this shows that houses aren't ridiculously overvalued in most of the country in the way they are in, say, London providing interest rates are sustained at such lows. Of course it has been a surprise that they have stayed low for a decade now so I get your frustration. Interesting times will arrive when rates start going up in any meaningful way. 

Of course your point about the deficit and government debt is its own can of worms. I can't see why that would cause interest rates to rise in the near future though. I would guess it actually gives developed countries a motive to collectively sustain low interest rates. So until I see a trigger to raise interest rates, I don't see the last penny yet. 

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7 hours ago, bushblairandbrown said:

As far as I'm concerned, when someone buys a house their only method of pricing is to compare houses for sale and buy the best one they can afford. Nothing more sophisticated is realistically feasible. Sure a few outsiders like on this site think long term and play the long game but for most people that is a huge inconvenience to the flow of their lives (permanent home, especially to raise children) and a good portion would struggle to understand the long term issues.

So my point is, house prices are simply dictated by income and the availability of debt. At the moment, I would put forward as a rule of thumb that typically someone will be happy paying a third of their monthly income on a mortgage. With interest rates and inflation effectively negligible, you can do a noddy calculation: median household income of £27k so about £22k after tax, take a third of that over 30 years and you get about £220k, which is not miles off the median house price.

Now I've just pulled the one third out my **** and it happens to give a quite accurate estimate but let's not get hung up on that. Crucially I think this shows that houses aren't ridiculously overvalued in most of the country in the way they are in, say, London providing interest rates are sustained at such lows. Of course it has been a surprise that they have stayed low for a decade now so I get your frustration. Interesting times will arrive when rates start going up in any meaningful way. 

Of course your point about the deficit and government debt is its own can of worms. I can't see why that would cause interest rates to rise in the near future though. I would guess it actually gives developed countries a motive to collectively sustain low interest rates. So until I see a trigger to raise interest rates, I don't see the last penny yet. 

Earn £27,000 in 2018/2019 and you'll take home £21,743. This means £1,812 in your pocket a month. Loan Amount: £220,000.00 Monthly Payment: £969.32 Interest Rate: 2.34% Term of Loan: 25 years

 So 53% of income  leaving £842 for everything else.

Your 1/3 rule gives

Monthly Payment: £594.81 Loan Amount: £135,000.00

Interest Rate: 2.34%Term of Loan: 25 years

"noddy calculation" can get you into serious trouble.

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2 hours ago, sexton said:

Earn £27,000 in 2018/2019 and you'll take home £21,743. This means £1,812 in your pocket a month. Loan Amount: £220,000.00 Monthly Payment: £969.32 Interest Rate: 2.34% Term of Loan: 25 years

 So 53% of income  leaving £842 for everything else.

Your 1/3 rule gives

Monthly Payment: £594.81 Loan Amount: £135,000.00

Interest Rate: 2.34%Term of Loan: 25 years

"noddy calculation" can get you into serious trouble.

Nice, something seemed massively off about his numbers.

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3 hours ago, sexton said:

Earn £27,000 in 2018/2019 and you'll take home £21,743. This means £1,812 in your pocket a month. Loan Amount: £220,000.00 Monthly Payment: £969.32 Interest Rate: 2.34% Term of Loan: 25 years

 So 53% of income  leaving £842 for everything else.

Your 1/3 rule gives

Monthly Payment: £594.81 Loan Amount: £135,000.00

Interest Rate: 2.34%Term of Loan: 25 years

"noddy calculation" can get you into serious trouble.

That is why in 2018/2019 it is necessary to have two incomes of £27,000 not one.

Thousands of Grandparents and other family members or friends will be doing childcare duties this school summer break......simply because of the massive growth in housing costs but not wages/incomes.....;)

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I am a great one for keeping note books, was the most un organised man in the UK, for logging phone calls, job enquires and conversations as well as various scraps of paper, one of them was from 2009 that someone printed off for me from Motley Fool, it was what people were earning after tax and the percentage who were earning it, and what their monthly before tax wage was, I found it fascinating  for some reason. I have just quickly tried to dig it out and misplaced it 🙂 But really need to dig it out again  and maybe even update it soon.

It was surprising how little the top 30% were on for example, to me anyway, and the top 10% of earners was not that impressive, which I was just short of back then I think, It all made me think how is this housing bubble staying inflated, who are people doing it, still don't have a clear answer.

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3 hours ago, sexton said:

Earn £27,000 in 2018/2019 and you'll take home £21,743. This means £1,812 in your pocket a month. Loan Amount: £220,000.00 Monthly Payment: £969.32 Interest Rate: 2.34% Term of Loan: 25 years

 So 53% of income  leaving £842 for everything else.

Your 1/3 rule gives

Monthly Payment: £594.81 Loan Amount: £135,000.00

Interest Rate: 2.34%Term of Loan: 25 years

"noddy calculation" can get you into serious trouble.

My numbers are fine. 53% of income isn't unrealistic anyway. Also no one borrows the full value of their mortgage and 30 years is a better figure to use than 25 because i know plenty of people who have extended their mortgages by remortgaging (eg due to divorce or bomad or whatever). 35 years wouldn't be absurd. If you are going to factor interest in then you need to factor wage inflation also which means that 53% is going to come down year after year and given that wage inflation is very near to inflation they are (sort of) going to cancel each other out with effectively high initial payments and lower later payments. So you would need about a third say 15 years into the mortgage. By year 15 at annual 2.5% wage growth you have a compounded 45% salary increase and your 53% has become a more comfortable 40%. That's still higher than a third because you need to factor in average initial deposit. Again the third was just hand waving anyway as a reasonable measure.

But this is getting away from the point I was making which is a very simple calculation shows we are not in cloud cuckoo land. I don't want to obscure it by overcomplicating the basic idea. I have shown you why the prices have sustained since 2008 and you can argue with my figures all you like but frankly after a decade of no crash you will struggle.

Before anyone calls me a troll, to clarify why I come here, I think house prices are unnecessarily high but this is due to political issues rather than dysfunctional markets as per my previous post. Given the rules our politicians have created, I think the market is not massively high in much of the country (London and other certain places excepted). 

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Wouldn't someone on 27k be entitled to loads of tax credits as well, which would make houses more affordable?

I'm also in the "house prices are a function of cost and availability of credit" camp.. I simply don't think that most (or at least enough) people can see past the monthly payment when considering a house purchase, especially when "house prices always go up".

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10 minutes ago, Henrik said:

Wouldn't someone on 27k be entitled to loads of tax credits as well, which would make houses more affordable?

I'm also in the "house prices are a function of cost and availability of credit" camp.. I simply don't think that most (or at least enough) people can see past the monthly payment when considering a house purchase, especially when "house prices always go up".

Sure as eggs be eggs not so many would be buying with debt if they thought or could see "house prices going down"........they would be losing their deposit money before the lenders would lose theirs......still got the monthly payments to find up or down.;)

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14 minutes ago, winkie said:

Sure as eggs be eggs not so many would be buying with debt if they thought or could see "house prices going down"........they would be losing their deposit money before the lenders would lose theirs......still got the monthly payments to find up or down.;)

Good point Winkie.

Transactions are down ... but I can't remember where/how to look up 'new' mortgage trends ... are you suggesting that new mortgage money must go down a lot before we can hope that the '(last) penny has dropped'?

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Not suggesting anything in particular.....it is a variety of factors and sentiment that will cause the rug to be pulled from under the feet of people that will always take on as much debt as anyone will give them always.....lenders want at least a certain percentage of capital returned sometime in the future, they also want their assets to grow to enable more leveraged debt for the tempted to take on, but most of all they require interest ie rent growth to survive.;)

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48 minutes ago, bushblairandbrown said:

 

But this is getting away from the point I was making which is a very simple calculation shows we are not in cloud cuckoo land. I don't want to obscure it by overcomplicating the basic idea. I have shown you why the prices have sustained since 2008 and you can argue with my figures all you like but frankly after a decade of no crash you will struggle.

Before anyone calls me a troll, to clarify why I come here, I think house prices are unnecessarily high but this is due to political issues rather than dysfunctional markets as per my previous post. Given the rules our politicians have created, I think the market is not massively high in much of the country (London and other certain places excepted). 

You're not overcomplicating anything. You're simply wrong. UK house prices crashed spectacularly in 2008/9 and didn't start recovering nationally until 2013, and then thanks only to an unprecedented succession of govt subsidies many of which are still in operation.

Troll.

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I have seen a chart on this site that shows average mortgage payments as a % of average household income in different decades. Basically, once it hit 30%, a house price crash happened. Throughout much of this decade, I believe the figure has been about 25%.

Average household income is north of £40k IIRC? Throw in the growing preference for 30 year mortgages (the banks' preference and muppet borrowers who think it is a better deal) and I can see how people outside the southeast make it happen.

The biggest complaint it seems, at least as mentioned in the MSM, is the challenge of getting a deposit together. Few people are talking about struggling to afford the actual monthly repayments right now.

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4 minutes ago, rantnrave said:

I have seen a chart on this site that shows average mortgage payments as a % of average household income in different decades. Basically, once it hit 30%, a house price crash happened. Throughout much of this decade, I believe the figure has been about 25%.

Average household income is north of £40k IIRC? Throw in the growing preference for 30 year mortgages (the banks' preference and muppet borrowers who think it is a better deal) and I can see how people outside the southeast make it happen.

The biggest complaint it seems, at least as mentioned in the MSM, is the challenge of getting a deposit together. Few people are talking about struggling to afford the actual monthly repayments right now.

True, because interest rates are so low that is why more people taking on more debt is a target for lenders, they want your debt not your savings.....they make money from assets growing, thus people feeling comfortable about taking on larger debt commitments thinking the more they borrow the more they will accumulate, the richer they become......debt is wealth innit, until it isn't. ;) 

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11 minutes ago, zugzwang said:

You're not overcomplicating anything. You're simply wrong. UK house prices crashed spectacularly in 2008/9 and didn't start recovering nationally until 2013, and then thanks only to an unprecedented succession of govt subsidies many of which are still in operation.

Playing devil's advocate...

Which govt subsidies are still in operation?

  • SMI is now a loan
  • Help to Buy is a scam and a half, but now only restricted to newbuilds
  • Funding for Lending finished in January
  • Term Funding scheme finished in February (but is still having an effect)
  • Tax breaks for landlords are in the process of being phased out
  • There has been no new QE for years
  • ZIRP is still in place, but that sits more with the BoE - the 0.25% post Brexit vote was reversed, leaving IRs where they were at the start of this decade

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On the cusp of the 2007/08 financial crisis all the bad loan stories came out, my favourite was a guy with 18 credit cards that were all maxed out which were used to pay for his huge £300K mortgage and debts with his £18k job, even Gordon Brown used the word property bubble a dozen time in one week, probably to show he could foresee the future at a later date should it go wrong.

What debts do some of our neighbours have today, and they do have them no matter how wide the public smile is

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5 minutes ago, inbruges said:

On the cusp of the 2007/08 financial crisis all the bad loan stories came out, my favourite was a guy with 18 credit cards that were all maxed out which were used to pay for his huge £300K mortgage and debts with his £18k job, even Gordon Brown used the word property bubble a dozen time in one week, probably to show he could foresee the future at a later date should it go wrong.

What debts do some of our neighbours have today, and they do have them no matter how wide the public smile is

Acquaintance has got £35k on 0% credit cards, £15k in loans from family members and two IO mortgages with no plans to repay the capital. In his mid 40s and work is looking insecure. He's very blasé about it...

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29 minutes ago, rantnrave said:

Playing devil's advocate...

Which govt subsidies are still in operation?

  • SMI is now a loan
  • Help to Buy is a scam and a half, but now only restricted to newbuilds
  • Funding for Lending finished in January
  • Term Funding scheme finished in February (but is still having an effect)
  • Tax breaks for landlords are in the process of being phased out
  • There has been no new QE for years
  • ZIRP is still in place, but that sits more with the BoE - the 0.25% post Brexit vote was reversed, leaving IRs where they were at the start of this decade

Hammond gave Carney the authority to print another £750+bn last month without needing explicit permission from parliament. That's the TFS on steroids. I expect the Canadian dummy to open up the liquidity taps again before the year's out, perhaps as soon as this autumn.

Plus, the host of subsidies and kickbacks that property developers and housebuilders continue to receive for all manner of jobs, including Build-to-Rent.

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2 minutes ago, rantnrave said:

Acquaintance has got £35k on 0% credit cards, £15k in loans from family members and two IO mortgages with no plans to repay the capital. In his mid 40s and work is looking insecure. He's very blasé about it...

I was living in a south Cambs village only a few years ago, very nice. Got on very well with a guy running a decent sized window and door fitting company. Lovely house, nice looking lifestyle at first glances. And being the open book he was and a problem shared is a problem halved type he told me, he told most of us actually, he had a £130K odd tax Bill, which I know you can put of if you are creative and inform HRMC as much as possible plus a VAT bill, they are a bit more dodgy to muck about with. He accepted three years before I knew him that he was going to go bankrupt, he still had not packed and gave in to the inevitable  when I left and saw him a few times later.

He is probably folded now, or is he, how many people are living an illusion

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  • 339 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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