Caporegime
How much is the mortgage for the one you bought today? I guess that makes up the large portion of the total.
Interest rates increased
- Thread starter Dirk Diggler
- Start date
How much is the mortgage for the one you bought today? I guess that makes up the large portion of the total.
got 6 years left on my mortgage so fixed at the start of the year at 1.64% for 5 years as I'd done well for the good few last years being on an older lifetime tracker which was BOE - 0.29% or something but had a collar so it couldn't go any lower. As rates were only looking like going one way at the start of the year decided it was a good time to fix.
Soldato
Does it concern you that your relative and eldest needed you to buy the house and keep them, rather than them being able to afford it for themselves? We are proper broken as a country.
Soldato
I've yet to be a in job (and I'm 47) where there has been a cost of living increase, mortgage subsidy or anything like that. You should just get the same(ish) salary for the same job and do what you can with the money.
I've often thought this, problem is the old would never buy it
but there is a certain logic to it
Soldato
House prices are always "high" against salaries. It will never change IMO. Most people will set aspirations higher if the value of property falls vs income.
The late 80s/ early 90s whilst terrible in some regards were a boon for homeowners who managed to hang onto them. They just didn't always feel like it at the time.
So lets take a hypothetical MrLightbulb. Today he takes home £1500 and spends £500 in his mortgage, 33%
2% inflation average from 2022 - 2032 would see Mr lightbulb having had 22% increase in salary, assuming salary matches inflation.
Also assuming tax % remains the same his take home income would now be £1830, his mortgage still £500, and hence now 27.3%
Roll on 10 more years, half way on a 40 year mortgage and we have, still using 2% across the board now a 48.5% increase in salary compared to 2022
So salary would be £2227, mortgage £500, now 22.5% roughly.
3% inflation average would bring the salary increase in £ terms to 80.6%, and 3.5% would be at 99%, almost double ( over 20 years)
3.5% inflation (slightly high by most peoples metrics) average for 20 years in effect halves the cost in real terms of the mortgage.
Lets also look at MrLightbulbs property value.
Lets assume his purchase price was £100k, and 95% LTV. With the 2% inflation by year 20 the house is worth around £149k, and the mortgage principle remaining should be around 2/3rds, so £60k, net equity is now £149k-60k = £89k where as in 2022 it was £5k.
When you look at numbers like that its very easy to see how property owners see a massive improvement in their position with simple 2% inflation and some time.
If you factor in some high inflation years, assuming you at least average pay rises to match over time, you can see how that seriously devalues (in real terms) the debt from the initial mortgage.
Eg 8% inflation for 9 years is practically a doubling of notional amount, (or halving of value).
Another way to look at it. If your house inflation matches your interest rate, you can sell the house after say 20 years and the value will have gone up by more than you have been paying. (Actual terms not in real terms)
Sure its only paper wealth as such.
The late 80s/ early 90s whilst terrible in some regards were a boon for homeowners who managed to hang onto them. They just didn't always feel like it at the time.
So lets take a hypothetical MrLightbulb. Today he takes home £1500 and spends £500 in his mortgage, 33%
2% inflation average from 2022 - 2032 would see Mr lightbulb having had 22% increase in salary, assuming salary matches inflation.
Also assuming tax % remains the same his take home income would now be £1830, his mortgage still £500, and hence now 27.3%
Roll on 10 more years, half way on a 40 year mortgage and we have, still using 2% across the board now a 48.5% increase in salary compared to 2022
So salary would be £2227, mortgage £500, now 22.5% roughly.
3% inflation average would bring the salary increase in £ terms to 80.6%, and 3.5% would be at 99%, almost double ( over 20 years)
3.5% inflation (slightly high by most peoples metrics) average for 20 years in effect halves the cost in real terms of the mortgage.
Lets also look at MrLightbulbs property value.
Lets assume his purchase price was £100k, and 95% LTV. With the 2% inflation by year 20 the house is worth around £149k, and the mortgage principle remaining should be around 2/3rds, so £60k, net equity is now £149k-60k = £89k where as in 2022 it was £5k.
When you look at numbers like that its very easy to see how property owners see a massive improvement in their position with simple 2% inflation and some time.
If you factor in some high inflation years, assuming you at least average pay rises to match over time, you can see how that seriously devalues (in real terms) the debt from the initial mortgage.
Eg 8% inflation for 9 years is practically a doubling of notional amount, (or halving of value).
Another way to look at it. If your house inflation matches your interest rate, you can sell the house after say 20 years and the value will have gone up by more than you have been paying. (Actual terms not in real terms)
Sure its only paper wealth as such.
Soldato
Our housing system would work if there was availability at all price points.
Earn only £10k a year, yes you can still get a house.
Earn more, get more, as now.
But we're in a situation where there aren't enough houses and we have exploitative landlords filling the gap, benefiting from other people's inability to own, caused through policies that we have created ourselves and could change if we wanted to.
Its just wrong.
Earn only £10k a year, yes you can still get a house.
Earn more, get more, as now.
But we're in a situation where there aren't enough houses and we have exploitative landlords filling the gap, benefiting from other people's inability to own, caused through policies that we have created ourselves and could change if we wanted to.
Its just wrong.
Caporegime
Ah yes where house prices follow earnings
You can they are made by Vango.
Soldato
I disagree, my parents where nurse and a caretaker in a hosipital and they both managed to own 3 properties...
One was a very decent sized one too that.
Im in a much higher paid flashy job then they were in and yet just about can afford a decent home now..
Similar.
My mum was a hair dresser and my dad was a postman and thier house that they sold is now 500k (current house is much more but that's with my step dad so I exclude it)
They brought up 3 kids.
So they had a bigger house, less income from job (even inflation adjusted) and brought up 3 kids are long mortgage free.
They didn't even have to try. No fancy investing etc.
If I had 3 kids now I'd be crippled and might be mortgage free by time I am 60 on a much smaller and cheaper house.
It's anecdotal. But you only had to be sensible with money then, not clever. You could easily do very well (now) with quite little.
Always get the high interest rates brought up. But we are basically at the lowest rates can be with massive debt.
Don't have any resentment. But it's definitely harder for average person to end up mortgage free at retirement
Soldato
yea exactly.
Our parents had it easy in terms of being able to buy there own properties.
Nowadays you practically have to be earning triple digit salary (at least here in london) to be able to afford a 3 bedroom 80sqm house in zone 4+
Our parents had to deal With
- high interest rates.. Which came down.. Great .
- low house prices (even taking into account inflation)
Our generation has
- low interest rates.. Which can only go up from here really. I mean rates of less than 1 percent on your mortgage is the actual bottom.
-high property prices - which can go up or down. (generally up, but not guaranteed)
So our generation doesn't have it tooo bad with the low rates. But soon as they go up you're into really difficult times. As the debts are so high.
I see a lot of arguments like.. 1 percent increase is nothing, we had 15.
But 1 percent can be 100 pounds a month easily on a typical new mortgage.
As it happens 1 percent is 100 for me ish.
Soldato
But the key difference is, a property that was bought by my parents was like 100k for a 5 bedroom house which was a 5min walk to a main underground station and so even though interest rates were high, they certainly wasnt paying tpically over 2grand a month on mortgage repayments like what most people who own a prorty do(on say a 600k house, 10 percent deposit)
A lot of people today are on the brink really and a 1 percent increase could be fatal for some. 15 percent increase? Mate all of us london who own properties will be homeless... and thats on a triple digit salary...
It all comes down to monthly payments vs income you recieve and our parents diddnt earn anywhere near the income some of us here earn but the difference is the monthly payments were not stupid for a owned property vs today where its a farce really despite record history low interest rates.
If things continue as they are, in about 10 years time you have to be a millionaire to afford a 2 bedroom flat meaning more people will be in poverty.
To be fair though, lifestyle can have a huge impact on this also. These days people feel entitled to yearly holidays, new phone each year or bi yearly etc etc. I know people that live almost rent free and still manage to put away less money because of this. On the whole I agree it was easier back then, but they also did not have the quality of life we have now.
Hard one though as everyone is in different circumstances. We saved for ages and had a nice deposit before buying our 3 bedroom semi. Considering extending in a few years to a 5-6 bedroom, plus a nice fat mancave/office at the back of the garden. But not happy about interest rates going up. Don’t want to borrow more and then end up in a position where interest rates sky rocket. Trouble is the longer we wait to pull the trigger on the extension, the more it will cost. Will probably fix the mortgage again to another 5 year one and overpay as much as we can.
Soldato
true. i guess there is more distractions as you can say for us to waste our money on. like graphics cards and steam decks
But yea i hear ya. I think if we all just stop and look at what we own in our house now, i bet if you combine a lot of our possesions that we own, thats probably enough to to increase ones deposit for a house etc.
I worked out 5 percent on mine would be manageable but absolutely crippling.
I would have no holidays. Few luxuries. Would be simply existing.
10 percent would be probably just game over.
But others will likely Cave much sooner.
I don't think it will be the pure rate that kills people. I don't think it will get that high. It will be anyone in negative equity who bought in last 2-3 years who have tiny deposits and get stuck on svr. That svr will be 6+ percent soon.
You'll have people coming off 2 percent going straight to 6 percent. Likely 600 pounds ppm increase.
At same time cost of living is ballooning.
There will be people who come unstuck. Just depends how many.
Associate
When the BOE says themselves everything is going to be a mess for the next few years, we should worry. It is not something they say very often.
And they have no tools to improve the situation as it is a globally driven issue. All they can do is increase rates, which will just fan the flames.
Soldato
Salary to house prices is the worse it's ever been. I'm not saying as a whole that the current generation has got it worse but salary to house prices is the worst it's ever been.
www.newstatesman.com
How UK house prices have soared ahead of average wages
The average house price is 65 times higher than in 1970 but average wages are only 36 times higher.
www.newstatesman.com