Affordability of UK Housing

[Benjamin]

There was a bit of a discussion yesterday which got mixed up on the wrong thread so I thought it best to start this one in Other Topics as it's nothing to do with France. [:P]

The following is the first few paragraphs of a report from the Council of Mortgagr Lenders. The full article can be found on the Reuters web site under the Personal Finance section.

By Jennifer Hill

LONDON (Reuters) - Rising interest rates

have pushed affordability for first-time buyers to its worst in more

than 15 years, figures show.

First-time buyers spent an average

18.3 percent of their gross income on mortgage interest payments in

March -- up from 16 percent the same month last year, according to

figures from the Council of Mortgage Lenders (CML).

The

rise -- which largely reflects increases in interest rates -- means

that the proportion of first-time buyers' salaries taken up by mortgage

payments is at its highest level since the first quarter of 1992.

The CML's latest figures also show that first-time buyers are

now forced to borrow an average 3.31 times their income to get a

foothold on the property ladder, up from 3.15 a year ago.

The

growing cost of buying a home is preventing many from entering the

market: the number of first-time buyers fell to 33,100 in March, down 8

percent on the same month in 2006.

CML director-general Michael

Coogan said: "Affordability constraints continue to be a barrier to

home-ownership for many first-time buyers.

"Mortgage lenders are

trying to help by offering innovative products where appropriate, but

will want to ensure lending remains prudent."

My generation had a tough job of coping with interest rates of 13, 14 or 15% but at least we seemed to be able to get started.

[Panda]

Hi Benjamin

Having got drawn into the other thread I thought I would comment on this one. 

I too had a mortgage with a 15% interest rate, it was tough but I was 21 and had my own house, I was earning a pittance too, how soon we forget the struggle. 

My mortgage was only twice my salary though, that's the big difference as your clip above points out,  I know of some young people having 5 x salary mortgages, the lenders had them self certify their salary, telling them it wouldn't be checked, it's criminal and if the rates rise they are scuppered.  The other point is the dramatic rise in interest only mortgages, if the house prices don't continue to rise, again they are up that infamous creek, imagine a return to the huge repossessions of that era, finding your house worth less than the interest only mortgage you've got on it, not a nice thought at all.

Mind you I came here to get myself off the mortgage treadmill and now I find myself with 2 having decided to enter the realms of buy-to-let in France, at least these are low fixed for term products, thats something I guess! 

Panda

[Russethouse]

Not only did we pay 15% but if I remember correctly the mortgages were on 'allocation' and in order to make it easier we opted for an endowment motgage - all the rage then..........[:(]

Our accountant says that the Halifax will lend up to 6 times annual salary, which is a frightening thought..........

[suein56]

[quote user="Russethouse"]

Not only did we pay 15% but if I remember correctly the mortgages were on 'allocation' and in order to make it easier we opted for an endowment motgage - all the rage then..........[:(] [/quote]

Gosh, that brings back some (unhappy) memories. Some friends of ours waited in a queue for 3 months for a decision about their mortgage and were then refused one as the allocation had run out by the time it was their turn. They were told to reapply later in the year!

We were told by our mortgage company, when we asked for a bigger mortgage as we wanted to move from a 3 bed bungalow to a 4 bed house to cater for our growing family, that they couldn't increase it as they only catered for people who had to move rather than wanted to move.

Sue

[WJT]

If housing costs continue to rise in the UK, the UK banks may have to start loaning mortgages for 120 years like the Japanese. Someone here may know better than me but I remember reading something about this because housing is so expensive in Japan. The debt is somehow passed down to descendents. [blink]

[Gardian]

In the Thames Valley (and no doubt in many other parts, but it's the area we know) it's desperate.

Our younger son would like to get started on his own place and will shortly have a decent deposit.  However, even on a reasonable income and with the silly multipliers talked about, he has no chance of getting a mortgage, let alone funding it.

My advice to him is to sit tight for the time being (not much choice anyway) because I believe that some major 'adjustment' is round the corner. It's a statement of the bloomin' obvious that if buyers can't enter at the bottom, the whole pack of cards collapses.  Sadly, some are going to get badly burnt.  

[Russethouse]

 The only thing I can see happening in the Thames Valley (our location) is that if interest rates go up some people will either bale out or be repossessed.......sadly. Supply and demand drives the market, at least here, for the moment.

I signed up for http://www.ourproperty.co.uk/ which gives the actual price houses sell for, in a given location. I notice from todays list that terraces on a busy road are fetching £230,000 - mad...........

[RumziGal]

[quote user="Russethouse"]

 Supply and demand drives the market, at least here, for the moment.

[/quote]

Is that not how a market works?  [8-)]  

How would you like to see house prices controlled?    Make mortgages harder to get?    I don't know, is it better to have a 120-year mortgage, or not be allowed one at all?

Or do you think the government should control house prices?   It would be interesting to hear some suggestions on how they could do it.    For example, would you be happy to have a restriction on the profit you could make when selling - you can only sell for the purchase price plus 5%, say?

[Thibault]

Another option - increase the supply.  Build more houses everywhere - villages, towns etc.  Make one couple households move from 3 bed houses to 2 bed houses - for example, when children leave home, make their parents "downsize".  [:)]  Build more flats and fewer houses - better utilisation of land.

But on a more serious note, have you noticed that in large cities like Birmingham, there is a lot of accommodation above shops which appears to be unused - I am thinking here of the shops along the Stratford Road, for example.  These buildings are very large Victorian buildings, often 3-4 stories high.  Why not encourage the owners to convert these into modern flats for young people or those who would like a city life style?

[Russethouse]

http://www.whitingandpartners.co.uk/Content/Five_Govmnt_Subsidies_Property_Investors.htm

There are schemes to assist with increasing the amount of living accommodation above shops, but having lived in such a flat I can say it certainly has its pro's & cons. ( We also had a bus stop outside our flat and being a keen clothes maker at the time all I can say is that some of the people on the top deck got to see more of me than normal [:)])

There are also schemes where parents can help, the Bank of Ireland has one I know of and there are others, but if you have more than one child or are near your own retirement........

Perhaps first time buyers should be exempt from stamp duty........?

[Benjamin]

Some interesting points of view.

There is already interventionism in the market place in the form of the BoE Monetary Policy Commitee who are charged with setting the BoE rates to control inflation. This obviously will have an effect on mortgage rates but house prices seem to have a strong resilience to rising rates, certainly at current levels.

A financial comentator on this morning's TV pointed out that if you have a £100,000 mortgage at the standard rate (no special deals) and the rate moves by a quarter percentage point then it will cost you an extra £16 per month. He then went on to say that this would therefore take that amount out of the economy and curb peoples' ability to spend on other things.

What he failed to say was this move will directly increase the profits of the lenders. Perhaps it's time to carry interventionism a step further and start a windfall tax on these lenders who are, in my opinion , already making obscene levels of profits. This tax could then be directly applied to subsidise first time buyers for as long as they remained first time buyers i e if they want to move up the housing ladder then they would lose the mortgage subsidy.

A secondary effect would be to stop people trying to move up the property ladder for no good reason which would then have a knock-on effect on ever spiralling prices.

Final thought; I used to visit the Channel Islands regularly on business some 20 years ago. Property developers ther were not given planning permission for grandoise housing schemes unless they also built socially affordable housing for locals only purchase.

[Ford Anglia]

Our first mortgage, way back, we had to wait SEVEN months for funds to be made available, eventually signing for the house on a "letter of intent" from our BS.

On advice from friends, family etc, we borrowed as much as we could afford, in order to fund the house we wanted. Everyone said that as our wages went up, so it would be a smaller and smaller percentage of our income.

Unfortunately, Mrs Thatcher happened very soon after...........our repayments went up drastically, and the BS was unhelpful, offering to put us on a 40 year mortgage, (which actually saved us under £4 a month), or help us sell the house.

We spent the next 6 months to wage increase time, living on VERY cheap stuff, with the heating off, walking everywhere except to work and back, (which was too far to walk). Four and half miles into town and four and a half back to go to the market........The bus fare saved bought milk, etc.

Happy days.............NOT