Jump to content
House Price Crash Forum
It is different this time

Households Dangerously Overstretched

Recommended Posts

http://www.moneyhighstreet.com/news/181809...erstretched%27/

Any further interest rate increases could mean some people do not have enough money to pay their monthly mortgage bills, a new study has warned.

Consumer website Fool.co.uk has said that many consumers are already stretched to the limit financially and further interest rate rises could create a situation where people find themselves struggling with debt.

According to the website, the gross income of the average household in the UK is £32,800 - after tax, this works out at £26,700. With average household expenditure at £20,800 and £6,600 taken with mortgage payments, people in the UK are already at their financial limit.

However, the website has warned that many consumers could still be benefiting from fixed-rate deals agreed when interest rates were lower. As these begin to expire, people could find themselves short for money.

"The signs are not good for overstretched homeowners, and by implication the housing market," warned David Kuo, the head of personal finance at Fool.co.uk.

"With almost no contingency left in their budgets, another rate rise, even a small one, could see many homeowners struggling to meet higher mortgage costs."

"Homeowners need to act swiftly. It is vital that they revisit their budgets now and identify where savings can be made."

Mr Kuo added that people could have to cut their household expenditure by as much as ten per cent if interest rates increase again

Tell that to muppets who offer/accept 6 times salary IO mortgages just to get on the ladder at any cost. I think people have been conned into thinking that rates will always stay low & house prices will only go up. Interesting times ahead and we'll learn who's been swimming naked when the tide goes out!

Share this post


Link to post
Share on other sites
Any further interest rate increases could mean some people do not have enough money to pay their monthly mortgage bills, a new study has warned.

Maybe they should have thought about that when they took out a huge mortgage at historically low interest rates in the biggest housing bubble the UK has ever seen?

Share this post


Link to post
Share on other sites
Maybe they should have thought about that when they took out a huge mortgage at historically low interest rates in the biggest housing bubble the UK has ever seen?

I agree but many out there would buy with any sign of affordability whether it is IO mortgage or 6/7 times salary. They can't see the future as long as they have it today no problem. They'll only see it as a problem when it ends in tears.

Share this post


Link to post
Share on other sites
I agree but many out there would buy with any sign of affordability whether it is IO mortgage or 6/7 times salary. They can't see the future as long as they have it today no problem. They'll only see it as a problem when it ends in tears.

I can picture the slimy EA answering the question on future IR rises: "Y'see Madam, if the prices start to fall, then the IR will go down and people will buy even more; it's the market. It's actually better for you for when you will wanna move up the ladder after making enough profit on this one".

If you bet on bad taste and stupidity, you ALWAYS win.

Share this post


Link to post
Share on other sites
Maybe they should have thought about that when they took out a huge mortgage at historically low interest rates in the biggest housing bubble the UK has ever seen?

see house - want house - get offered finance for house.

That's about as far as most people's thought processes go, I'm afraid. Beyond that, its denial and endless self-validation. The simple solution of "go without" has been lost from our culture.

Share this post


Link to post
Share on other sites
Tell that to muppets who offer/accept 6 times salary IO mortgages just to get on the ladder at any cost. I think people have been conned into thinking that rates will always stay low & house prices will only go up. Interesting times ahead and we'll learn who's been swimming naked when the tide goes out!

I have to ask, it might be an obvious question but it is one that I have to ask..

And I do know that I am not asking the actual people this is directed at when I ask it, I am asking you to speculate on the motives of others.

I am not arrogant enough to believe that I am breaking new ground in posing this question as it is a damn obvious question that will result in fairly obvious answers, a rhetorical question really…

But I do have to ask…

What the hell were they thinking?

What were they thinking when they borrowed so much money that they would not be able to repay it should interest rates go up.

These are variable interest rates, interest rates that can change on a monthly basis and were at an all time low.

25 year loan that they could not afford if interest rates went back to levels below their long time average.

This is not a gamble at all, there was only one possible outcome.

What were they thinking?

Share this post


Link to post
Share on other sites
What were they thinking when they borrowed so much money that they would not be able to repay it should interest rates go up.

'House prices always go up!' 'Get on the ladder now or you'll miss the boat forever' 'Look dear, your mate Chantelle made 100,000 pounds tax-free on her ex-council house in the last two years'.

Share this post


Link to post
Share on other sites
£ 32,800 average Gross

£26,700 After TAX ...?!?!?!?

Its more like £ 23/24000 after tax NI etc....

Remember this is household income, not individual income, so there may be more than one person's personal tax-free allowance involved.

Share this post


Link to post
Share on other sites
Remember this is household income, not individual income, so there may be more than one person's personal tax-free allowance involved.

That makes more sense as the figure looked remarkably high for individual average earnings.

With many families relying on two wage earners there is absolutely no slack - it's not as though one member of the family who was previously not working can go out and get a job to bring in some extra income. Most families are already earning at maximum capacity so if outgoings are greater than income they are stuffed.

"Annual income twenty pounds, annual expenditure nineteen nineteen six, result happiness. Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery."

Share this post


Link to post
Share on other sites
I have to ask, it might be an obvious question but it is one that I have to ask..

What were they thinking?

I wish I knew the answer. Any reason we guess could only confirm their stupidity & greed as there is not a single good reason why an average guy, on average salary, should overstretch to buy an average home today. Yes the monsters are still waiting to lend you the money no problem but 25 years debt of today's prices is too long & too dangerous to speculate in today's market.

Share this post


Link to post
Share on other sites

"With average household expenditure at £20,800"

I find it hard to believe that mortgage repayments will be the first thing to be at risk of going unpaid if the above is true!

Thats £1700 a month on groceries, bills etc. Now OK, im not a family - fair enough. But my expenditure is a fraction of that per month. I power, heat, insure, pay council tax etc on a 3 bed semi. Feeding and clothing a wife (unless shes a bit of a tanker) and say 2 kids wont push the amount up that much - or will it?!

Perhaps the difference is I have a bike and not a car, I dont have mobile contracts, gym, sky, blah blah - but surely people would sooner lose these than their home - but maybe not lol, I think I am a bit niave when it comes to these things ;)! There was also a thread here a few weeks ago which detailed where our money goes - including £1bn on gossip magazines lol! Another 3bn on "fad" foods. etc.

Anyways, all the best to those who are going to struggle - better get yaself over to moneysavingexpert.com and start making those pennies count :)!

Share this post


Link to post
Share on other sites
I have to ask, it might be an obvious question but it is one that I have to ask..

And I do know that I am not asking the actual people this is directed at when I ask it, I am asking you to speculate on the motives of others.

I am not arrogant enough to believe that I am breaking new ground in posing this question as it is a damn obvious question that will result in fairly obvious answers, a rhetorical question really…

But I do have to ask…

What the hell were they thinking?

What were they thinking when they borrowed so much money that they would not be able to repay it should interest rates go up.

These are variable interest rates, interest rates that can change on a monthly basis and were at an all time low.

25 year loan that they could not afford if interest rates went back to levels below their long time average.

This is not a gamble at all, there was only one possible outcome.

What were they thinking?

They were thinking that house prices always go up and if they don't buy now they'll be priced out forever. Oh and that low interest rates are here to stay and they will never rise again 'cause Gordy has banished boom and bust, innit.

Share this post


Link to post
Share on other sites
"With average household expenditure at £20,800"

I find it hard to believe that mortgage repayments will be the first thing to be at risk of going unpaid if the above is true!

Thats £1700 a month on groceries, bills etc. Now OK, im not a family - fair enough. But my expenditure is a fraction of that per month. I power, heat, insure, pay council tax etc on a 3 bed semi. Feeding and clothing a wife (unless shes a bit of a tanker) and say 2 kids wont push the amount up that much - or will it?!

Perhaps the difference is I have a bike and not a car, I dont have mobile contracts, gym, sky, blah blah - but surely people would sooner lose these than their home - but maybe not lol, I think I am a bit niave when it comes to these things ;)! There was also a thread here a few weeks ago which detailed where our money goes - including £1bn on gossip magazines lol! Another 3bn on "fad" foods. etc.

Anyways, all the best to those who are going to struggle - better get yaself over to moneysavingexpert.com and start making those pennies count :)!

the problem is,when those pennies get counted,and gym memberships/sky/mobiles/restaurants etc get cancelled or reduced to lower tariffs...this impacts the bottom line of these businesses.....who in turn will cut costs by shedding staff.

it's a viscious circle,as these poor numpties get laid off,the rental market goes pop!!

Share this post


Link to post
Share on other sites
Guest Magrathea
the problem is,when those pennies get counted,and gym memberships/sky/mobiles/restaurants etc get cancelled or reduced to lower tariffs...this impacts the bottom line of these businesses.....who in turn will cut costs by shedding staff.

it's a viscious circle,as these poor numpties get laid off,the rental market goes pop!!

Bingo ..Precisely correct

Demand reduces and people become unemployed and can't get the same wages- and all those juicey rents can no longer be afforded..Bang! The whole thing falls apart

The real estate market destroys the productive economy and itself in this manner about every 18 - 20 years

Share this post


Link to post
Share on other sites
Guest d23
Bingo ..Precisely correct

Demand reduces and people become unemployed and can't get the same wages- and all those juicey rents can no longer be afforded..Bang! The whole thing falls apart

The real estate market destroys the productive economy and itself in this manner about every 18 - 20 years

rents went up during the last crash but maybe it'll be different this time.

Share this post


Link to post
Share on other sites
The real estate market destroys the productive economy and itself in this manner about every 18 - 20 years

Ssshh. Don't get the syndromey types started about cycles and all that. If they've been overindulging in the weak lemon drink again, we're going to get multicoloured charts relating housing activity to the moon, using this as a basis.

Mind you, the cops were trying that one (moon = bovver) on the other week.

Share this post


Link to post
Share on other sites
Bingo ..Precisely correct

Demand reduces and people become unemployed and can't get the same wages- and all those juicey rents can no longer be afforded..Bang! The whole thing falls apart

The real estate market destroys the productive economy and itself in this manner about every 18 - 20 years

Yep, and due to the fact that our whole economy is based on HPI and MEW - if the house prices fall then so does our wider economy. Recession anyone?

Share this post


Link to post
Share on other sites
rents went up during the last crash but maybe it'll be different this time.

Even though there was high demand in rental in London during the last crash, rents remained fairly stagnant at the lower end from 1988 - 1994 . Any movement would have been at the higher end of the market, though not huge changes.

Edited by joey

Share this post


Link to post
Share on other sites
Guest Magrathea
rents went up during the last crash but maybe it'll be different this time.

Actual paid rents went down, but rent yeilds were subsidised by government. I don't think we can afford that trick this time

Yes. After subsidising landowners to the tune of nearly the entire value of public services by not taxing real estate correctly; when the crash came the government then subsidised them again by emptying public coffers into flailing rents an calling it "helping the poor"

Share this post


Link to post
Share on other sites
With many families relying on two wage earners there is absolutely no slack - it's not as though one member of the family who was previously not working can go out and get a job to bring in some extra income. Most families are already earning at maximum capacity so if outgoings are greater than income they are stuffed.

Not only that double maximum incomes makes them more vulnerable to financial distress in an economic downturn caused by belt tightening should one of the wage earners be made redundant or have there hours forcibly cut. Part time/temporary "mummy jobs" will be particularly vulnerable IMHO.

Share this post


Link to post
Share on other sites
What were they thinking?

Simple answer - they weren't thinking.

Trouble is that there are so many gullible, spoiled and uninformed people out there who have been seduced by advertising and think there's an easy way to get what you want from life, and that they 'deserve' what previous generations would have considered luxuries. (Though in reality the vast majority of what's advertised out there is tasteless rubbish.)

It's to do with lack of a good education - in every way. ;)

Share this post


Link to post
Share on other sites
Tell that to muppets who offer/accept 6 times salary IO mortgages just to get on the ladder at any cost. I think people have been conned into thinking that rates will always stay low & house prices will only go up. Interesting times ahead and we'll learn who's been swimming naked when the tide goes out!

I dont think you can con millions of people with only a couple of years of low interest rate rises. The truth is that people dont think about it at all, rather than they think about it and conclude rates will stay low forever. All sorts of things prompt people into buying their home - the misery (for many) of renting being key amonst them.

Share this post


Link to post
Share on other sites
Maybe they should have thought about that when they took out a huge mortgage at historically low interest rates in the biggest housing bubble the UK has ever seen?

Consumer expenditure remains very high - all people need to do is cut out a few CDs/DVDs/takeaways and IPODs. Just think - the annual fortnight in spain may have to go but that will save several thousand so dont expect legions of the homeless just yet. Unemployment will be a trigger for a crash, not a few % on interest rates.

Share this post


Link to post
Share on other sites

Join the conversation

You can post now and register later. If you have an account, sign in now to post with your account.

Guest
Reply to this topic...

×   Pasted as rich text.   Paste as plain text instead

  Only 75 emoji are allowed.

×   Your link has been automatically embedded.   Display as a link instead

×   Your previous content has been restored.   Clear editor

×   You cannot paste images directly. Upload or insert images from URL.

Loading...

  • Recently Browsing   0 members

    No registered users viewing this page.

  • 354 The Prime Minister stated that there were three Brexit options available to the UK:

    1. 1. Which of the Prime Minister's options would you choose?


      • Leave with the negotiated deal
      • Remain
      • Leave with no deal



×
×
  • Create New...

Important Information

We have placed cookies on your device to help make this website better. You can adjust your cookie settings, otherwise we'll assume you're okay to continue.