2022 mini-budget discussion

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Av pay in 1980 was £6,214 per annum and average house price was £23,287 so 3.8 times income.

A 95% mortgage would cost you £283 per month or 54% of your annual salary

Av pay in 2022 is £29,400 and av house price is £296,397 so 10.08 times income. House prices are 1010% up during that period.

a 95% mortgage would cost you £1,335 per month at 3% mortgage rates so again 54% of your annual salary.

But you also have to factor in inflation. Inflation is up 255% from 1980 to 2022 so house prices have gone up by 4 times more than inflation.

BoE rates were 16% in 1980 but variable mortage rates were only 15%/

Also interesting to note is that the UK av payrise was 22% in 1980 so wages were going up rapidly which they arent now. I suggest it was a lot easier to deal with a 15% mortgage rate if your wages were going up by 22% per annum? They went up another 18% in 1981 even though mortgage rates fell. Av pay in 1981 was already £7,020 per annum. Inflation was 14% in 1980 but people were getting way more pay rises above inflation which made high interest on mortgages easier to handle.

So once mortgage rates go above 3% then people are worse off than people in 1980 paying a mortgage with 15% interest rates. If rates ever got back to 15% again then the av mortgage holder with the average house would pay 147% of their annual salary on just their mortgage.

So no, its much much worse now and once we get to 5%+ rates there is going to be big problems
 
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EddScott said:
Doesn't an increase in available spending lead to inflation?
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Yes, which is why I pointed out that a 5% reduction in income tax is an increase in nett pay i.e. available spending.

The same people who parrot the public sector wages rise myth are the people who think a tax cut has a different outcome.

Spoiler: public sector wage increases aren't the cause of inflation, sustained blatant profiteering is.
 
N00b question, why exactly are mortgage rates usually higher than interest rates. Could someone not offer better rates than everyone else and clean up.....
 
delta0 said:
Not really. Average full time pay was £6000 and average house mortgage payment was £400/month. Today it’s £39k and average house mortgage payment £1,280/month (based on 5%). Also as I pointed out the mortgage lending criteria wouldn’t allow someone on £39k to borrow that much in the first place. We have quite a bit of head room before we hit that sort of position. Not to say we won’t ever get there but just that we forget how bad it actually was back then. We haven’t seen anything yet.
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But again, as Ed Conway's report highlighted - the comparison between 1980 and now, is sort of invalid because people today have;

Expensive mortgages (£300-500k)
Multiple credit cards
Personal loans
Cars on PCP/lease deals
White goods bought on interest free,
So many other things which are paid for monthly.

Today's environment is so radically different, everything is geared towards borrowing money to pay for it, people's levels of personal debt are way way higher, as a proportion of their earnings, as they were in the 1980s.

This is why it's scary - any slight change to the base-rate, with that much debt, results in affordability going through the floor.
 
delta0 said:
Not really. Average full time pay was £6000 and average house mortgage payment was £400/month. Today it’s £39k and average house mortgage payment £1,280/month (based on 5%). Also as I pointed out the mortgage lending criteria wouldn’t allow someone on £39k to borrow that much in the first place. We have quite a bit of head room before we hit that sort of position. Not to say we won’t ever get there but just that we forget how bad it actually was back then. We haven’t seen anything yet.
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Your numbers seem off to me. It's no surprise that you you've ended up with a different conclusion to the rest of us.

In 1980, when the UK average salary was £6,000 and interest rates hit 14%, the average mortgage payment was only £19.10 per week.

https://www.ukhousingreview.org.uk/ukhr0304/tables&figures/03-049-050.pdf

And in 2021 it was £173 per week.

https://www.ukhousingreview.org.uk/ukhr22/tables-figures/pdf/22-049.pdf

More importantly however, you've not accounted for any of the other dramatic differences in cost of living today versus back then.

There's been a fair bit of professional analysis done on this and no one is coming out with numbers anything like your own.


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In terms of mortgage affordability/unaffordability, a 3% rate would put us about where we were in 1980.
 
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Inflation during Thatcher's time in N10 was ~6.5% annually and the average payrise per year was ~10.3%.

Why are we to suffer instead?
 
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chroniclard said:
N00b question, why exactly are mortgage rates usually higher than interest rates. Could someone not offer better rates than everyone else and clean up.....
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If your mortgage rate was equal to interest through life the bank would just get back what the lent you after say 25 years
The excess above the interest rate is profit
 
imtoooldforthis said:
What a thread the past ten or so pages have been. Thenewoc and Chris Wilson putting on a show, all we need now is Deuse to turn up with some pearls of wisdom.
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You know the Tories are in trouble when the resident cheerleaders try to switch the conversation from fiscal competency to identity politics.
chroniclard said:
N00b question, why exactly are mortgage rates usually higher than interest rates. Could someone not offer better rates than everyone else and clean up.....
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They have to price in risk.
 
chroniclard said:
N00b question, why exactly are mortgage rates usually higher than interest rates. Could someone not offer better rates than everyone else and clean up.....
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(N00b answer)

Risk I think.

The cost of borrowing from the BOE is how much the mortgage company pays for the loan. They add extra on top of that rate when they give it to you, to account for any risk (you lose your job, can't pay, get ill, die, whatever) so they're always making plenty of money to cover any losses..

Nobody is zero risk, so it'll always track slightly higher than the BOE rate, if you have a terrible credit history - it'll be much higher to account for the additional risk.
 
GordyR said:
Your numbers seem off to me. It's no surprise that you you've ended up with a different conclusion to the rest of us.

In 1980, when the UK average salary was £6,000 and interest rates hit 14%, the average mortgage payment was only £19.10 per week.


And in 2021 it was £173 per week.


But even so, you've not accounted for any of the other dramatic differences in cost of living today versus back then.


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In terms of mortgage affordability/unaffordability, a 3% base rate would put us about where we were in 1980.
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Still need to adjust for inflation of course, £19.20 in 1980 is the equivalent of £72.68 as of August 2022.

That still means it's a lot more expensive today.
 
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Dirk Diggler said:
Yes, which is why I pointed out that a 5% reduction in income tax is an increase in nett pay i.e. available spending.

The same people who parrot the public sector wages rise myth are the people who think a tax cut has a different outcome.

Spoiler: public sector wage increases aren't the cause of inflation, sustained blatant profiteering is.
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Which is why I never said that inflation was caused soley by increases in public sector wages.
 
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VincentHanna said:
Still need to adjust for inflation of course, £19.20 in 1980 is the equivalent of £72.68 as of August 2022.

That still means it's a lot more expensive today.
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Indeed, it's not a trivial "back of a fag packet" calculation, which is why the work that I've seen conducted on this by various housing market analysts and economists are all extremely in-depth publications.

And it's also why I have politely requested that @delta0 would kindly explain what he feels qualifies him to so confidently proclaim that these experts are wrong.
 
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Labour, the Lib Dems and the SNP have demanded parliament be recalled.
Meanwhile in the Tory party...
''Simon Hoare, the Tory MP for North Dorset and chair of the Northern Ireland Select Committee said: "In the words of Norman Lamont on Black Wednesday: 'Today has been a very difficult day'.

"These are not circumstances beyond the control of Govt/Treasury. They were authored there. This inept madness cannot go on."

Meanwhile, a former minister told Sky News that there is a "growing movement" for Chancellor Kwasi Kwarteng to step down.

"The mainstream majority think we have crossed the Rubicon", they said.''
 
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