Is Sir Keir In The Last Chance Saloon?

www.bankofengland.co.uk/monetary-policy/inflation/inflation-calculator

Put the price you paid your your first house into this calculator, add the date you bought it and see what that is worth in today’s money. Then compare the result to what the same house would cost now.

Bear in mind the huge rise in rent that comes off their income before they can save for a deposit and think about whether 20-30 years olds have it easier?

So I put the cost of our first house in and pressed the button.
Our first house is currently on the market @£12,000 less than the calculation shows.

My DGD earns over 20x more per month than I earned when I started work.

I don’t think that all 20-30 year olds have it easier, but neither do all 20-30 year olds have it harder.

Isn’t the issue now that house prices are much higher than income proportionally though? People can’t afford to buy because even with both incomes taken into account they can’t borrow enough to pay the deposit and mortgage.

Surely some price increases depend on where you live. South east no comparison to north west or east

Yes, that’s the case, because house prices haven’t risen as fast in some areas.
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This graph shows the differential in London against UK average. However, the house price/income gap has grown considerable everywhere in the UK.

Yes the house price income gap is the issue. We were able to help ours towards deposits fortunately. We are not well off but lump sums eyc

Our first house was 12.5 times my salary and about 5 times DH's. The Building Society would not take my salary into account.
Our rent was fairly reasonable in a flat, the upstairs in the house of an elderly lady, but it took three years of doing without and hard saving for the deposit. I do remember young married couples living with parents while they tried to save for a house deposit. My DB and SisIL lived with her parents for two years.

I just put my then salary into the calculator! 😂😂😂
And DH's 😂😂😂

I’ve just done the calculation.

It was a nonsensical result.

Far, far too low.

Also done it for where we live now, much more realistic.

The previous calculation was a property we bought back in 1981.

The calculator uses the Consumer Price Index (CPI) as this is the measure used by the Government to set the Bank of England’s target for inflation. An alternative credible measure, which is the ONS’s lead measure of inflation, is the Consumer Price Index including Owner Occupiers’ Housing Costs (CPIH).

I don’t think that all 20-30 year olds have it easier, but neither do all 20-30 year olds have it harder.
No, nor do I. Many of them have chances that were denied to us, and it's never realistic to make direct comparisons between generations.

Until recently I thought that all generations had a hard time getting settled, but both of my children have been in the housing market over the past couple of years. My son has bought one, and my daughter is in the process of making offers. I put the cost of our first house into the calculator and it came up at £79500. The same house would cost £250k now. There is no comparison. Yes, there has been wage inflation, and I can't remember what we earned back then, but I do know that we only used my husband's salary in the mortgage calculations, as I was a student. He was 24, recently qualified and not earning a fortune, but we got a mortgage. We struggled when interest rates rocketed, but looking at what my children are going to have to pay, and how much both of them paid in rent whilst saving for a deposit (we didn't rent before buying) there really is no comparison.

I still live near where we bought the first house, and my children live in (separate) different areas, but roughly comparable for house prices. Of course the differentials differ depending on area, but even allowing for that it is much harder on the whole for most young people than it used to be.

My sister and I were talking about this yesterday and agreed that for anyone it is difficult to save when you are young, but that 'in our day' at least we could see the point because we knew that in a couple of years we would have a deposit for the house we wanted to (even though it was a small starter home). I married at 22, and most of my friends were that sort of age. I think the average age for a first time buyer is now 35, as it takes so long to save a deposit. Even 10 years ago things were easier.

I agree with you Doodledog. I bought a flat when I was 28 and single. It cost three times my salary as a first year teacher. A flat in the same block is currently for sale. The price is about eight times the salary of a first year teacher.

But a lot of the house value inflation is caused by interest rates being so much lower.

As I said, increase interest on home loans to 10% or 12% and the value of houses would plummet. Likewise if loans were restricted to one income only or one income plus half the second income. Prices rise to meet the maximum amount people are deemed to be able to afford in payments each month. The more money they can borrow, the faster prices will rise.

I agree as well. I am in my fifties and I absolutely benefitted from the situation in the housing market at the time when I was buying my first home. Not only that but when I was about to move to my first 'family' home I made a considerable profit on the sale of that first home ( we had been there three years) it would be ridiculous of me not to acknowledge my good fortune, the situation is very different for my children.

Casdon

Isn’t the issue now that house prices are much higher than income proportionally though? People can’t afford to buy because even with both incomes taken into account they can’t borrow enough to pay the deposit and mortgage.

I would agree with this.

I put three houses into the inflation calculator. All three came out as lower than they would be priced on the market now.

In fact, the first one, a two bed terrace in a popular city suburb, according to the calculator the price we paid in 1974 would now buy something at about £80,000. When I looked at actual house prices in the same area a one bed flat costs £200,000.

Our current property, with land, purchased 30 years ago came out at very considerably less than it would go on the market for now.

Tell me that house prices haven't become highly inflated

M0nica

But a lot of the house value inflation is caused by interest rates being so much lower.

As I said, increase interest on home loans to 10% or 12% and the value of houses would plummet. Likewise if loans were restricted to one income only or one income plus half the second income. Prices rise to meet the maximum amount people are deemed to be able to afford in payments each month. The more money they can borrow, the faster prices will rise.

And thousands, if not millions of house owners would find themselves in negative equity.

What a vote catcher that would be...

M0nica

But a lot of the house value inflation is caused by interest rates being so much lower.

As I said, increase interest on home loans to 10% or 12% and the value of houses would plummet. Likewise if loans were restricted to one income only or one income plus half the second income. Prices rise to meet the maximum amount people are deemed to be able to afford in payments each month. The more money they can borrow, the faster prices will rise.

Interest rates shot up for a short time, but for most of the time I had a mortgage, even slightly higher interest rates wouldn't compare with what they would be today. I couldn't even afford the deposit on the flat I bought in 1983.

MaizieD

I put three houses into the inflation calculator. All three came out as lower than they would be priced on the market now.

In fact, the first one, a two bed terrace in a popular city suburb, according to the calculator the price we paid in 1974 would now buy something at about £80,000. When I looked at actual house prices in the same area a one bed flat costs £200,000.

Our current property, with land, purchased 30 years ago came out at very considerably less than it would go on the market for now.

Tell me that house prices haven't become highly inflated

Not only that, but the offspring of the people who currently own property which has increased massively in value, will eventually inherit. Those whose parents don't own a property won't inherit anything. As a result, the gap between haves and have nots will increase even more.

Mollygo

So I put the cost of our first house in and pressed the button.
Our first house is currently on the market @£12,000 less than the calculation shows.

My DGD earns over 20x more per month than I earned when I started work.

I don’t think that all 20-30 year olds have it easier, but neither do all 20-30 year olds have it harder.

I was a teacher when I bought my flat, so I'm able to compare my salary then with what a new teacher would earn now. A new teacher would now earn five times as much as I did in 1983, but the price of the flat I bought is 14 times as much as I paid.

Thanks growstuff for such clear information on house-salary then and now.

Strangely, though the price of our first house is on sale now at £12,000 less than the calculator, the cost of our current house is £33,000 more than the calculator reckons, though it is just over 12 months since we had a valuation.
I think one difficulty for house buyers, both when DC’s bought their houses, and now some DGC are getting to that stage, is that they were/are more likely to need both salaries taken into account. (That will also impact on SAHP/or Nursery provision, if they actually dare to have children.)

The calculator is not looking at house prices, but at what the money spent would be worth now. So my first house cost the equivalent of £79500, which has nothing to do with what it would cost in today's prices.

As it happened, we made very little on it and still had to stretch to buy the next one - a modest semi. As soon as we bought it the rates went up to 15% and more, and we locked in for five years, as there was no way of knowing they wouldn't continue to do so. High rates prevailed until we had paid off the mortgage and could afford to save, at which point they plummeted and have remained low.

All the same, compared to the experience of my children's generation we did have it easier. As I said earlier, we saved the deposit in a couple of years, which is all but impossible these days.

I think one difficulty for house buyers, both when DC’s bought their houses, and now some DGC are getting to that stage, is that they were/are more likely to need both salaries taken into account. (That will also impact on SAHP/or Nursery provision, if they actually dare to have children.)
Agreed, and this is one of the reasons why I think we need more policies that equalise things.

Molly - are you sure you're filling in the figures correctly? It is a massive anomaly to have a house worth £12k less than it sold for decades ago. Did you include the date you bought it?

Doodledog
Molly - are you sure you're filling in the figures correctly? It is a massive anomaly to have a house worth £12k less than it sold for decades ago. Did you include the date you bought it?
Yes, but the area has apparently “gone down” since we left-quite a long time ago, so although the cost of the house has definitely risen substantially from what we originally paid, the current asking price is just under £12,000 less than the calculator.