Mortgage rates of yesteryear.

Chardy And was anyone seriously surprised when recent interest rates went up a tiny bit from next to nothing, and then a bit more? I was very surprised they were so low for so long.

Indeed. Rate was far too low for far too long. Had to correct.

House prices aren’t going to halve, in a free market prices match demand and most buyers CAN afford current prices. When demand for housing falls, sellers will accept less to get a sale, in turn building material costs will fall, as will land prices.

While demand remains high, prices may level off because interest rates are higher, when stability returns prices will still reflect ability to pay the mortgage.

M0nica

Housing is the classic supply/demand market. It is entirely driven by the demand for housing and by the supply and this market is balanced at the point where as Petera says ^ the value of houses will just reflect the amount of money that people can afford to borrow.^

Where she is wrong is in thinking that were she able to 'magically' halve house prices, it would make any difference, because the moment she halved prices so many people would rush into the market to buy all the houses that were now so cheap that prices would return to their higher level with in weeks, if not days.

The housing market will always adjust back to the balancing point. No builder will build a house that costs more to build than they can sell it for, if prices fall too far, they just stop building, this limits supply. If prices go too high or economic or other circumstances means that there are fewer buyers out there than houses, this limits demand, then prices fall, in each case until they reach the balancing point, which is how much people can afford or are prepared to spend each month on housing.

It is not a mortgage market, because even if loans were interest free, or you had to pay cash, prices would be regulated by how large a monthly repayment you could make, or how much you could afford to save each month, to get to the pointwhere you were in the market to buy a house.

Of course you're mostly correct M0Nica about how it would play out, but that wasn’t the point I was trying - perhaps clumsily - to make. The idea of thinking about what our personal situations would be if house prices were half of what they are was to show that high house prices benefit only a very small number of people – they don’t even really benefit many of those who own the houses or their children.
Here was a recent conversation I had with my daughter after refreshing our wills:
Me: Like before it’s all going to you, the largest asset is of course the house.
Her: Then if house prices rise there’ll be more money?
Me: Yes
Her: That’s good then
Me: Do you know what you’ll spend it on?
Her: A more comfortable house of course – they’re so expensive!

For the last point we will have to agree to disagree, I think what you written shows exactly that it’s the mortgage market that drives the house market

MaizieD

I suppose this is working up to 'people don't know they were born these days and we had it really hard an we survived' ?

Well, stop it.

We knew what the interest rates were going to be when we took those mortgages on; current generation of mortgage holders had no idea that rates were going to increase sharply and rapidly.

Our mortgage offers were based on a smaller ratio of income to sum lent. And for a long time the only salary taken into account was the husband's. It was a struggle for many of us but at least we had a bit of leeway.

We weren't a generation brought up in the expectation of always getting cheap and easy credit. You might have a judgement (adverse, of course) to make on that, but like it or not, that's what subsequent generations are used to and work with.

Everything is quite different now.

I'm horrified by the position my children's generation find themselves, so I don't disagree with the theme of your post, MaizieD but...
I found out I was expecting a planned 2nd baby a couple of weeks before yet another hike on mortgage rates in 1980s. Nightmare, I was back at work full-time when she was 3 months old, at a time when I knew only one woman working with 2 small children (part-time!).
And was anyone seriously surprised when recent interest rates went up a tiny bit from next to nothing, and then a bit more? I was very surprised they were so low for so long.

Housing is the classic supply/demand market. It is entirely driven by the demand for housing and by the supply and this market is balanced at the point where as Petera says ^ the value of houses will just reflect the amount of money that people can afford to borrow.^

Where she is wrong is in thinking that were she able to 'magically' halve house prices, it would make any difference, because the moment she halved prices so many people would rush into the market to buy all the houses that were now so cheap that prices would return to their higher level with in weeks, if not days.

The housing market will always adjust back to the balancing point. No builder will build a house that costs more to build than they can sell it for, if prices fall too far, they just stop building, this limits supply. If prices go too high or economic or other circumstances means that there are fewer buyers out there than houses, this limits demand, then prices fall, in each case until they reach the balancing point, which is how much people can afford or are prepared to spend each month on housing.

It is not a mortgage market, because even if loans were interest free, or you had to pay cash, prices would be regulated by how large a monthly repayment you could make, or how much you could afford to save each month, to get to the pointwhere you were in the market to buy a house.

Esspee

It is not uncommon for the younger generation to tell us how much easier it was in our day to buy our homes and how hard done by they are currently, especially with mortgage rates on the rise.

How many of you remember paying 15% on their mortgage?

Yes I do; but I agree with them. They are paying much more even with low interest rates than we did due to prices.

The wisest thing I ever head anyone say about this is that we don’t have a housing market, we have a mortgage market, the value of houses will just reflect the amount of money that people can afford to borrow.

And we are not even rational about this. If I could magically halve house prices overnight then most people would actually benefit, even those owning houses, but no-one would accept it.

Lathyrus. The problem with leaving the property empty (apart from the ethical one) is that you still have to pay council tax, standing charges on utilities, keep the place heated to prevent dampness, mould or worst of all burst pipes and there will be the external wear and tear. Far better to sell I would have thought.

Franbern

How on earth can people who are paying rent (which pays of the mortgage of the owner), be expected to be ever able to save enough money to become home owners themselves??? All their money is used in paying off someone else's mortgage!!!!!

We certainly couldn't in the 70's. Our deposit of £4000 on a house costing £18,500 came partly from my savings for tax (we were both self employed at the time) and partly a loan from my father who had just inherited his mother's estate and he had surplus money.

On the subject of investment property I recall back in the 80s that investors buying commercial property expected to have paid for the property after a 12 year rental period. In fact I have a few clients whose rent (commercial property) has paid of their initial loans a few times.

Bought our first house in 1969. DH had recently left the Fleet Air arm, and had just started a new job. Two little ones aged 3 & 16 months. It was a two up two down cottage, no bathroom, outside (flushing) loo, but it was OURS! after 5 years of renting. We got a full grant for a bathroom extension and a damproof course. Our mortgage was low as my grandfather had died aged 52, from damage to his lungs received in WW1, and had left me, his only grandchild, a small legacy in trust till I was 21. Later we moved and I well remembered interest rates at 17%! DH was made redundant and worked freelance for the rest of his working life, times were certainly hard as it was for all of us. But we worked, frequented the second hand shop, charity shop and Exchange & Mart! My parents started with nothing, my father was in the RAF, and was killed 20 months into their marriage. We went lived with my maternal grandparents till the end of the war, then, my mother (we) started again!

JaneJudge

Can you not get insurance to cover loss Lathyrus? I know it wouldn't cover repair though

No. When I first let three years ago I had an inclusive contract with the agents that covered lost rent at a higher management fee. When the last disastrous tenants left it meant new contracts all round and they said they weren’t doing that contract any more because they had lost so much money.

Landlords insurance doesn’t cover for intentional damage or lost rent.

It’s a shame because it’s a nice little house for a couple starting out and I deliberately set a lower rent so that it would be possible to save a bit too. But either I have to charge a rent that will cover potential losses or I have to just let it stand empty.

I really don’t want to sell.

Can you not get insurance to cover loss Lathyrus? I know it wouldn't cover repair though

Franbern

How on earth can people who are paying rent (which pays of the mortgage of the owner), be expected to be ever able to save enough money to become home owners themselves??? All their money is used in paying off someone else's mortgage!!!!!

I don’t know. I suppose rents are high because there’s a shortage of rental properties. But also because tenants are often expensive.

I became an “accidental” landlord when I moved in with OH. I didn’t want to sell my house in case I needed to go back for any reason.

So far repairs and unpaid rent, together with the expenses of letting and meeting legal requirements and tax meant that this year my rental income was just under £1000.

Nevertheless I have resisted raising the rent. But if I was paying a mortgage on the property I would have to or risk running at a loss.

When these tenants move I think I will leave the property empty.

Franbern

How on earth can people who are paying rent (which pays of the mortgage of the owner), be expected to be ever able to save enough money to become home owners themselves??? All their money is used in paying off someone else's mortgage!!!!!

I don’t know. I remember thinking the same when we were in a flat, but that’s what we did.

How on earth can people who are paying rent (which pays of the mortgage of the owner), be expected to be ever able to save enough money to become home owners themselves??? All their money is used in paying off someone else's mortgage!!!!!

MaizieD They are grown ups not still children tied to their parent's apron strings. They understand modern media more than we do, have made lives for themselves, very different from our own. Of course they should know this without their parents teaching them.

They should realise, as we did, that you need to know and understand what is happening in the world around you. They must have an interest in things like this because otherwise so much would not be written about it in the media.

I think the problem is one that has existed since the beginning of time, of people shutting their eyes and ears to things they do not want to know.

I have every sympathy for younger people with the many problems in the world they need to contend with, but I have no sympathy of anyone of any age who keeps themselves culpably ignorant.

MaizieD If people today did not realise that interest rates were bound to go up sooner or later and that the rates we have had for the last 20 years have been abnormally low, then they are culpably ignorant

They are the generation we reared, MOnica (or, in some cases, our grandchildren). So who is responsible for their culpable ignorance?

Swapping stories of the hardships we might, or might not, have faced when we were younger, is fine. Blaming these younger people for the situation they now face is not. They are no more, or no less virtuous than our generation.

I'm happy to acknowledge that not everyone got into blame mode...

But lack of empathy for younger people is just annoying.

MaizieD If people today did not realise that interest rates were bound to go up sooner or later and that the rates we have had for the last 20 years have been abnormally low, then they are culpably ignorant.

The current rate of interest rates and their abnormality and all the other side affects have been discussed ad nauseam in all the popular media.

It is the same way that the dangers of the way mortgages were being given on excessive multitudes of income and the dangers of self-certification were being discussed in the media as something to be concerned about with more and more regularity in the late 1990s and early 2000s, but somehow, no one in governments, of either party, read any of them, and were completely taken by surprise when the flak hit the fan in 2008.

If houses were 'unaffordable' now, then there would be hundreds of houses unsold in every town and village in the country and builders would be going bust because they couldn't sell the houses they had built, nor build more, a bit like Ireland in 2008, if any of you had any reason to visit that country then (I did).

Housing is usually the classic/supply demand market, interest rates and house prices balance at a monthly payment that means the number of those buying equals the number of houses for sale. If interest rates go up, prices will, probably come down and there are already signs that this happening.

That story is similar to mine, Gandalf. It just isn't true that we knew in advance that rates would rise so much. We narrowly missed negative equity in our first house, but sold it for only slightly more than we paid for it (after ten years) and buying the next one to start a family was a massive jump in the mortgage alone, and within months the rates hit 15%.

It is very unfair to castigate other generations, IMO. Older people saying that young couples shouldn't have phones or buy coffee should try to think back to their youth and what they didn't do in comparison with others of their age and circle. The odds are that most of us did (and did without) the same things as our friends. There are very few outliers in any social group, really.

Similarly, even older people saying that they wouldn't have had children if they knew they would have to 'farm them out' probably bought a house and had children when houses were cheaper, rates were lower, and one salary would cover the bills.

Young people complaining about 'boomers' have no idea of how we lived, either. We only get one life, and can only have one set of lived experiences, so it's better not to make assumptions about others.

We bought our first home in October 1988. A tiny two up two down terrace on a 95% endowment mortgage. The week we signed all the paperwork interest rates hit 15%. The mortgage took my whole monthly salary apart from about £20 and all other bills were covered by my husband’s salary.

Within two years our house was worth 20% less than we paid and we were in negative equity. Our endowment was mis- sold and was never going to make enough to pay back the loan. Eventually we switched to a repayment mortgage . I remember how hopeless it felt that we would ever have any spare cash or be able to afford anything better.

Nearly 35 years later we have worked our way up the property ladder and are now mortgage free and looking forward to retirement. Those early years were a rollercoaster but we got through it and came out the other side. One car, no fancy holidays and simple pleasures were the order of the day. Eating out was a treat. We did our own diy and decorating and lived a simple life until the situation improved.

In either 69 or 70 my father sold our quite big house in Mortehoe and moved to Braunton. The house was £3000 for a three bedroom semi, his mortgage was £9 a month… but he was only earning £17 a week… all relative …

I remember 15%. Our house cost less than they do now, but our income was far less too.
Add to that the unexpected loss of job because of new baby and no family close at hand and we found life really hard. Lots of walking, meagre diet and no luxuries.
The main reason I think I was better off than young people today e.g. my GD
is was that I wasn’t oppressed by such enormous expectations like ‘must have a phone’ and housing costs, although huge to us, weren’t as huge as they are now and if you got a job, you were more likely to be able to keep it.

Oh yes 15 to 17% what fun that all was. All I know is that everything seems a lot less fun now.

SueDonim, I so agree with you.

*vegansrock. My parents started married life renting a semi detached house with an indoor bathroom. All we could afford was an unself contained flat. We shared the bathroom with the owner and the other tenant and had no tv or garden, although we did have a fridge, bought in the sales. We didn't own a tv or washing machine for another 4 years and the tv was a small portable one. All the furniture, such as it was, was secondhand, either given or bought at auction.

We were saving for the deposit on a house, and practically everything went by the board until we had got it, plus all the costs

I found a link showing Home Price to Income Ratio, which is interesting:
www.longtermtrends.net/home-price-median-annual-income-ratio/

In 1990 when we bought our house the interest rate was 10.5% and we thought we were getting a good deal, since the rates had been higher previously. But we took out a fixed rate term of 7 years, and the rates did drop after that. It was also within the realm of possibility to pay off the mortgage before retirement. It seems now that is much harder for the younger generation. When we purchased, the ration was around 4.5 (so a house cost about 4.5 times our average income) which is about right for us. Now that ratio is 7.7 which is very high. They now have higher payments, and will take longer than average to pay it off.

We do own a rental property, and it was a good thing we had a new tenant last year and were able to raise the rent. Our mortgage was just renewed, and it went up by 2% which meant quite a jump in monthly cost. We do have restrictions on how much we can raise rent to protect tenants.

It is not about 'moaning' but not avoiding the differences.