Budget 2021: Mortgage guarantee to help buyers with 5% deposit

[413x]

So you need both partners to be earning the UK average wage but also live somewhere with house prices not above the UK average, quite a tricky balance. Considering your FTB is also likely to be at the age where people want to stat a family and it doesn't take a rocket scientist to see what is wrong with this picture.

Indeed. It pushes everything in life later. And a compromise has to be made.

Do you start a family later or not at all?
Do you move somewhere cheaper? But you might need family support for your own family etc.
Do you just carry on renting and take the hit when you're older?

To have what my parents have is impossible.
A paid off mortgage early
in a big house,
final salary pension,
a family with 3 kids
average jobs
no clever financial stuff.

Myself. I see me ending up
Modest house (probably half or 1/3 value of theirs)
No family
Livable (I hope) pension
House paid off late

And that's with no unexpected negatives.

Not moaning. Life isn't fair. And I have more than a lot. But if I'm fortunate with my job. And it's above average, and I'm having to make compromises.. You can see how others don't stand a chance

 

[Deleted User 298457]

So you need both partners to be earning the UK average wage but also live somewhere with house prices not above the UK average, quite a tricky balance. Considering your FTB is also likely to be at the age where people want to stat a family and it doesn't take a rocket scientist to see what is wrong with this picture.

Median salary/median house price is a more useful comparison.

 

[MissChief]

It's really hard if you're single/single income.

You are chilling away at a moving target. If you can't get your wage up the barrier could be getting further away in a lot of areas and easily outpace your saving rate.

Given that house prices are rising by 7-10% yearly yet even the best savings account gives about 3% interest with most giving less than 1%, some even 0.1% or less you’re having to keep adding and adding which many can’t do given the cost of renting.

 

[413x]

Given that house prices are rising by 7-10% yearly yet even the best savings account gives about 3% interest with most giving less than 1%, some even 0.1% or less you’re having to keep adding and adding which many can’t do given the cost of renting.

Surely this rise can't be maintained?
I mean, unless they offer even more ridiculous mortgages like 60 years and multi gen and people accept them it can't continue?

There will be too many houses out of reach of too many people to sustain it?

I can't imagine many people of my generation wanting a house like my parents for example


Long Commute.
Lots of upkeep.
Ridiculous council tax/heating.

Surely the people who are interested in these are going to dwindle away soon.

 

[MissChief]

Unless you’re adding to your savings pot by £500+ a month an average house will almost forever be out of reach. Say you’re after a £250k house, 10% deposit (I’m aware of the 5% point of this post) so you’re looking at 25k deposit. £500 a month will take 50 months or four years to save. By which time the £250k house, even at a modest 5% per year increase is now worth £290,000. Which means another £4,000 required. It’s exponential and the longer it goes on the worse and worse it’s going to get.

Unless you’re living with parents and able to save upwards of £1,000, ideally £1,500-2,000 per month (an almost impossible task for a single person, and still very difficult for a couple even on £25k a year each) that dream of house ownership will remain just that, a dream.

 

[Scam]

It’s exponential and the longer it goes on the worse and worse it’s going to get.

Hence my pretty major aggravation with the punitive LISA penalties. Afterall, I'm just trying to do the right thing and save ffs! As people have rightly gathered, I'm a massive cynic about all of this yet it still amazes me how hard the government makes it for people to save, whilst forever cosying up to homeowners.

 

[Barks]

So many of you wasting energy over complaining about house prices. They’re not going to keep going up at the same rate. We’re at the end of an interest rate cutting cycle. Once rates start going up the best outcome is that house prices stay flat, the worst is they start falling to more reasonable levels.

Longer term, when the older generations start dying off and their estates are sold off to pay inheritance tax bills, there won’t be an abundance of young people all earning 6 figure salaries who can afford the prices. Either wages start increasing over the next 10-30 years at a phenomenal pace or the entire housing market will come tumbling down.

Oh and Sunak’s latest fad will not help young people or FTBs, it’s just another mechanism to prop up house prices and he knows it. Honestly astonished he had the cheek to say “generation rent to buy” after he announced it.

 

[HACO]

So many of you wasting energy over complaining about house prices. They’re not going to keep going up at the same rate. We’re at the end of an interest rate cutting cycle. Once rates start going up the best outcome is that house prices stay flat, the worst is they start falling to more reasonable levels.

Longer term, when the older generations start dying off and their estates are sold off to pay inheritance tax bills, there won’t be an abundance of young people all earning 6 figure salaries who can afford the prices. Either wages start increasing over the next 10-30 years at a phenomenal pace or the entire housing market will come tumbling down.

Oh and Sunak’s latest fad will not help young people or FTBs, it’s just another mechanism to prop up house prices and he knows it. Honestly astonished he had the cheek to say “generation rent to buy” after he announced it.

The concern for many is that this should have happened, and would have happened, long ago if the government had left the market alone. But they keep making new policies (HTB loans, stamp duty holidays, mortgage guarantees, shared ownership) to artificially inflate the market and avoid a downturn. Which you also noted about this new mortgage guarantee.

The problem is, there's almost always another fad that they can pull off, and they've shown that they will do that. Whether it's higher salary multiplier, increasing mortgage terms to 50 or 75 years as Japan did, further guarantees for mortgages, etc...

 

[dowie]

Unless you’re adding to your savings pot by £500+ a month an average house will almost forever be out of reach. Say you’re after a £250k house, 10% deposit (I’m aware of the 5% point of this post) so you’re looking at 25k deposit. £500 a month will take 50 months or four years to save. By which time the £250k house, even at a modest 5% per year increase is now worth £290,000. Which means another £4,000 required. It’s exponential and the longer it goes on the worse and worse it’s going to get.

For them to be "forever" out of reach there needs to be a strong assumption there that "modest" 5% rises can be sustained almost perpetually, that isn't necessarily going to be the case. As someone else mentioned you're going to get boomers passing on houses at some point etc.. population doesn't have to grow necessarily, we can build more in the future etc... also interest rates might need to rise in future too (though the last point is somewhat moot - prices might fall or level off as a result of a rise in rates but homes won't necessarily be any more affordable given higher rates - the competition for any given desirable area is still there).

 

[MissChief]

For them to be "forever" out of reach there needs to be a strong assumption there that "modest" 5% rises can be sustained almost perpetually, that isn't necessarily going to be the case. As someone else mentioned you're going to get boomers passing on houses at some point etc.. population doesn't have to grow necessarily, we can build more in the future etc... also interest rates might need to rise in future too (though the last point is somewhat moot - prices might fall or level off as a result of a rise in rates but homes won't necessarily be any more affordable given higher rates - the competition for any given desirable area is still there).

Even at the moment prices are still rising. The housing market is seen as flat if prices only rise by less than 5% annually. The government want houses to sell so increasing their value so people can trade up.

 

[b0rn2sk8]

House price growth doesn't allow people to trade up, if anything its the opposite because the gap in £££ will increase over time.

 

[dowie]

House price growth doesn't allow people to trade up, if anything its the opposite because the gap in £££ will increase over time.

Depends, it isn't like different properties and/or different areas all grow at the same rate - you might find value in one area then in a few years when you come to sell, a relatively high rate of growth gives you a fat deposit to use elsewhere.

Also if prices are rising then it can help immensely with trading up, you can perhaps re-mortgage a couple of years after purchasing and have a much better LTV % ergo you end up with cheaper monthly payments than if prices had stagnated or fallen.

 

[BongoHunter]

House price growth doesn't allow people to trade up, if anything its the opposite because the gap in £££ will increase over time.

There's more to this when you consider property type and location as mentioned above.

Also worth thinking about the equity being accrued.

We put 15% down on our place for example, and went for a 5 year fixed deal, at the end of our 5 year term we'll have paid 80k minimum on top of our 15% deposit. If we were to sell at that point we could definitely trade up when getting the next one - even if we only borrowed the same amount as was outstanding at the end of our first 5 year term and purchased the same property type in the same area and went for a 25 year term (assuming interest rate below 3%).

Also a lot of people improve their homes during ownership - so even in a market with low growth a house can be worth more than you paid for it. Ours is worth about 15% more than when we purchased 2 years ago - and we've not spent anywhere near that amount on it (added a driveway, sorted the garden, and got rid of the old lady vibes from the interior).

For context this is west london, late 50's 3 bed semi in a nice area.

 

[MissChief]

In the past six years the average house price in the UK has risen from £190k to £231k. An increase of £41,000. A couple saving for a deposit who started in 2015 now need to find an extra £4,000. Or an extra £1,000 per year on top of the £4k per year they were already putting away. If you live in the south east or heaven forbid were born in London and are looking to stay there things are even more difficult.

 

[413x]

Very few winners with house price rises.
As said. If just makes the next rung further away.
I guess land Lords. Banks, people moving to a cheaper area benefit and anyone releasing equity.

Imagine what better investments you could make if a house was half what it was.
That interest rate is zapping you for cash for 20-30 years.

For some reason we are obsessed with house prices going up.

I'd love house prices to stay flat.

 

[dowie]

In the past six years the average house price in the UK has risen from £190k to £231k. An increase of £41,000. A couple saving for a deposit who started in 2015 now need to find an extra £4,000. Or an extra £1,000 per year on top of the £4k per year they were already putting away. If you live in the south east or heaven forbid were born in London and are looking to stay there things are even more difficult.

The comment was made about people trading up though rather than FTByers.

 

[HACO]

Very few winners with house price rises.
As said. If just makes the next rung further away.
I guess land Lords. Banks, people moving to a cheaper area benefit and anyone releasing equity.

Imagine what better investments you could make if a house was half what it was.
That interest rate is zapping you for cash for 20-30 years.

For some reason we are obsessed with house prices going up.

I'd love house prices to stay flat.

With all the money printing going on around the world, the inflation has so far been absorbed into asset classes, and conveniently we exclude the cost of housing when we calculate inflation. So we can continue to pretend that inflation is pretty low.

At some point, this inflation will trickle into the cost of all goods and services, and the central banks will have to increase interest rates. That may or may not cause a collapse in house prices, but generally higher interest rates are a downwards pressure on asset classes.

Depends, it isn't like different properties and/or different areas all grow at the same rate - you might find value in one area then in a few years when you come to sell, a relatively high rate of growth gives you a fat deposit to use elsewhere.

Also if prices are rising then it can help immensely with trading up, you can perhaps re-mortgage a couple of years after purchasing and have a much better LTV % ergo you end up with cheaper monthly payments than if prices had stagnated or fallen.

So FTBs should pay more for housing, so that existing homeowners can remortgage at a lower interest rate and landlords can use extra collateral to borrow more and grab even more properties, which in turns dries up the supply and further increases prices, and the cycle goes on. If this trend of never-ending price hikes at 5-10x inflation/wage growth continues, at some point we'll get to the point where inheritance the only path to home ownership. This is already somewhat true with most younger FTBs having to get help from parents for deposits if they want to buy in their 20s or even early 30s.

 

[413x]

I think any increase in interest rates will cause a crash. To get on the ladder I had to expose myself to some quite risky interest rate changes

I expect there arw lots in a similar position where even a moderate rate rise would be crippling

 

[HACO]

I think any increase in interest rates will cause a crash. To get on the ladder I had to expose myself to some quite risky interest rate changes

I expect there arw lots in a similar position where even a moderate rate rise would be crippling

Every single person I know who has bought in recent years borrowed at the maximum salary multiple, with the highest LTV possible.

 

[413x]

Every single person I know who has bought in recent years borrowed at the maximum salary multiple, with the highest LTV possible.

I was at highest bank would lend . But 85 ltv.
That's why . For me it was the salary that was the blocker