Jump to content
House Price Crash Forum

Ftb Homebuyers Over-stretched Bbc News


Recommended Posts

In the late 1980s and early 1990s, borrowers were blighted by double-digit interest rates, with rates peaking at 15.4% in 1990.

This study measured % of income spent on servicing debt. So low interest rate are hiding a much karger burden of debt, god forbid interest rate rise.

Unaffordable rates combined with rising unemployment led to 75,000 repossessions in 1991. In contrast, there were only 6,000 repossessions last year and the Bank of England base rate is currently 4.75%.

By 1991 we where well into the crash and this had caused resession, which caused juob losses, which caues repos. We have all this to come so this is a reduntant comparision.

Bearish start and then some bu11sh1t at the end!

Link to post
Share on other sites

V true moosetea.

I've noticed far more couples buying houses and relying on both incomes to get a high mortgage.

Friend of mine bought early 2003. 2 bed flat (well one bedroom was a cupboard IMO). Mortgaged using both his and wifes income.

Now they have a baby on the way. :blink::blink::blink:

His employers have given him a raise - very nice of them, many wouldn't.

But considering that he was earning less than the wife, they are going to be left with about 1/2 of what they had coming in before. And she plans to stay at home to look after baby.

that would probably take their % of take home pay in mortgage payments from 22% to 44%.... not nice.

Link to post
Share on other sites

MIRAS II situation. Then only couples maxing out and putting joint incomes -against joint Miras tax deductions could afford to buy even on the first rung - usually properties that were woefully inadequate for the likely changes with children or indeed keeping 2 jobs down in the local area.

When you rely on 2 incomes to buy you are doubly exposed to the potential loss of income either through redundancy or ill health for example, which is one of the reasons why previous sensible lending policies only allowed for partial consideration of one of the salaries - i.e. 3 + 1 x lending.

Of course since then the lenders have yet again thrown the rule book out of the window. With a bit of luck it will be the lenders who get it in the neck this time around rather than the hapless borrowers, it will be well deserved if they do.

Link to post
Share on other sites
Do they just pluck these figures out of the sky or something, if i took on a mortgage now i would be looking at paying 30-40% of my take home pay just on the mortgage.

I may be wrong but as I understand it the figures they quote are only for interest payments on the mortage to service the debt and do not include any capital repayments.......which is why the figures are rollox.

Link to post
Share on other sites

A few comments here.

Firstly, £688 must be an interest-only mortgage or is a repayment mortgage with a hefty (£30k+) deposit (assuming a base rate of 4.75%).

Secondly, let's not forget that 19.9% of wages applies to GROSS wages. It will be around 30% of net pay for a single person and about 28% (guess) of net pay for a couple earning £20.8k each (i.e. 1/2 of the average split equally).

My rent in London is about 13-14% of my gross wages. And I live in a nice flat, but STILL have no money left at the end of the month. 20% is a high ratio, even if it doesn't sound it.

Link to post
Share on other sites
My rent in London is about 13-14% of my gross wages. And I live in a nice flat, but STILL have no money left at the end of the month. 20% is a high ratio, even if it doesn't sound it.

I've just done some calculations and have a question for you Nico - do you manage to save any money?

I'm currently paying 18.4% of my net pay in SW London because I've turned a 1-bed rented flat into a 2-bed and share with my sister. At this level I manage to save a few hundred quid each month.

Soon to move to Chiswick it looks like this will go upto about 30% of net pay which is a big chunk and will greatly reduce what I can save.

Link to post
Share on other sites

Also, if the calculations are against gross pay, then they don't take into account the effect of increased taxation reducing the net pay.

If the payments are roughly equivalent %age of gross salary, then after additional taxation (Council Tax, Income Tax, all the stealth taxes) the net remainder after mortgage payments today will be far worse than it was at the peak of the last bubble.

Happy Days :lol::)

Link to post
Share on other sites
I've just done some calculations and have a question for you Nico - do you manage to save any money?

I'm currently paying 18.4% of my net pay in SW London because I've turned a 1-bed rented flat into a 2-bed and share with my sister. At this level I manage to save a few hundred quid each month.

Soon to move to Chiswick it looks like this will go upto about 30% of net pay which is a big chunk and will greatly reduce what I can save.

Last year - saved nothing. This year - trying to save roughly my rent each month. Remember - my rent is still at 1997 levels and is pretty low for where I live (should be 50% more I reckon).

Non FTB - good point about taxes there

Link to post
Share on other sites
Do they just pluck these figures out of the sky or something, if i took on a mortgage now i would be looking at paying 30-40% of my take home pay just on the mortgage.

Historically lenders used the following affordability rule of thumb;

Mortgage payments should represent approximately 1/3rd approx of take home pay.

So you are in exactly the same boat as I was in 1991 or my parents before.

Link to post
Share on other sites
Historically lenders used the following affordability rule of thumb;

Mortgage payments should represent approximately 1/3rd approx of take home pay.

So you are in exactly the same boat as I was in 1991 or my parents before.

For my first house purchase in 1975 there was no way I could have bought without both my salary and my wife's taken into account. Even so our mortgage payments were about 40-50% of joint net income. This was for a very modest mid-terraced house in a cheap area. Most people in the Southeast wouldn't have had a cat in hell's chance of buying anything on 1 salary.

Link to post
Share on other sites
For my first house purchase in 1975 there was no way I could have bought without both my salary and my wife's taken into account. Even so our mortgage payments were about 40-50% of joint net income. This was for a very modest mid-terraced house in a cheap area. Most people in the Southeast wouldn't have had a cat in hell's chance of buying anything on 1 salary.

Exactly what I was saying when someone here was saying they'd buy only when they could afford to pay the mortgage on one salary - I can't ever remember that being possible.

Link to post
Share on other sites
Exactly what I was saying when someone here was saying they'd buy only when they could afford to pay the mortgage on one salary - I can't ever remember that being possible.

Well, it must have been possible, because up until the mid-70's (or thereabouts) mortgage lenders did not take into account more than one salary when judging whether or not to lend (usually/always the man's).

Link to post
Share on other sites
Well, it must have been possible, because up until the mid-70's (or thereabouts) mortgage lenders did not take into account more than one salary when judging whether or not to lend (usually/always the man's).

Certainly wasn't the case in 1975 - I was there remember. I'm also 99.9% certain it wasn't the case before either, but have no way of proving it. They used to take into account something like 3 times 1 and 1 times the other, OR 2.5 times the combined. (Don't hold me to the exact numbers, it was a long time ago!)

I don't know anybody who bought a property on their own in my area. People lived at home until they married, unless they worked away from home, in which case they tended to rent as a lodger of a family.

Link to post
Share on other sites
Certainly wasn't the case in 1975 - I was there remember. I'm also 99.9% certain it wasn't the case before either, but have no way of proving it. They used to take into account something like 3 times 1 and 1 times the other, OR 2.5 times the combined. (Don't hold me to the exact numbers, it was a long time ago!)

I don't know anybody who bought a property on their own in my area. People lived at home until they married, unless they worked away from home, in which case they tended to rent as a lodger of a family.

That's exactly how the borrowing limit was calculated, Casual Observer, I was there too.

Link to post
Share on other sites

I've just done some back of the envelope calculations on "affordability" measures.

If you are supposed to spend 33% of take home pay on your morgage (repayment)

AND

A "prudent" lending multiplier for joint income is 2.5

AND

An average FTB household earns 41000 (split 50:50)

then interest rates on mortgages would need to be about 8.5% to make it hold.

Alternatively, with interest rates at say 5.5%:

Either the "prudent" multiple has to go up to 3.4

OR the % of take home pay should fall to 25%

Since people can bid each other up rather than just paying less out, what has happened in the low interest rate environment is that the multiple has been pushed up - even more than in the above example when interest rates were lower.

Link to post
Share on other sites
Exactly what I was saying when someone here was saying they'd buy only when they could afford to pay the mortgage on one salary - I can't ever remember that being possible.

Remember MIRAS - made it possible. Now, 1 and a half salaries is the norm as the whole tax credit scheme is geared to making sure mum goes back to work whether she likes it or not. If we (in London) were to limit our payments to 1/3 take home (on 1 and a half salaries - small child = Mrs A part time), it would be £750. That buys about 120K for a mortgage. With a 10% deposit, we are looking at a flat in the 130k range, but it would have to have 2 beds... so the wait goes on. Have seen things at around 160k now so it's getting better.

Link to post
Share on other sites
Certainly wasn't the case in 1975 - I was there remember. I'm also 99.9% certain it wasn't the case before either, but have no way of proving it. They used to take into account something like 3 times 1 and 1 times the other, OR 2.5 times the combined. (Don't hold me to the exact numbers, it was a long time ago!)

I don't know anybody who bought a property on their own in my area. People lived at home until they married, unless they worked away from home, in which case they tended to rent as a lodger of a family.

We bought in October 1975, it was a semi-detached bungalow in Bromley, we paid £10,000 for it, put a £1000 deposit, the rest we had on 3 times my husbands salary

(he was manager of a large grocers/butcher/poulterers in Farringdon Road, London) I did not work because our son had just been born. Some of our friends managed to do it on one wage and some had two of them working.

Link to post
Share on other sites
Can you remember what he earned, rainbow

Uh, BL, if the house cost £10k and they put down a £1k deposit, therefore the mortgage was £9k which was

3 times my husbands salary

therefore rainbow's husband earned £3k pa at the time.

Base rate in Oct 1975 was 12%, assume SVR 1.5% above base rate, 25 year term, monthly mortgage payment=£105.70

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.

  • 442 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%



×
×
  • 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.