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Guest blog: Shelter's Chief Exec on the rise of unaffordable housing(574 Posts)
This week, to highlight the fact that housing is increasingly unaffordable for many, Shelter published research which showed what our weekly shop would cost if food prices had risen to the degree that housing costs have done over the last decade.
In this guest blog, Shelter's Chief Exec Campbell Robb warns that unless something changes, the next generation will find it even tougher to get a stable and affordable home.
What do you think? Are you struggling to get on the property ladder, with rising rents making it increasingly difficult to save for a deposit - or are you worried for your children's prospects? How do you think the situation could be improved? Post your URLs here if you blog on the subject, or tell us what you think here on the thread.
You probably won't like hearing this but we actually do get a decent return, enough to cover my share of the bills for a year of maternity leave having only been given the minimum statutory amount from work. And how can you say property values won't have risen in 35 years? The house we have equity in is on a interest only BTL mortgage but we have saved any income made from it and paid down the mortgage when switching between products.
I take offence at you saying we price 'more responsible' people out of the market, you know next to nothing about me or any other landlord out there, how can you make such an assertion about my financial responsibility?
It would be about £555 a month but you add on to that agent's fee plus large amounts for repair etc.
I just don't agree buy to let it the main cause of rising house prices. Prices shot up in the 1970s for example because we had three years of inflation at 18,20 and 22%. There was a property crash then too. We had a property crash in the 90s too and interest rates before that I think it was up to 12%.
The reason prices have risen is because interest rates are low and people are prepared to pay the prices on offer. As Lord Young said borrowers have never had it so good - borrowing is dirt cheap. That is nothing to do with buy to let.
Indeed the ratio between house prices and salary comparing where I bought in 83 and where my daughter might same job 30 years on is not too different. It is just people these days are spoiled and will not slum it with a tiny starter place in a place they may not want to live. They expect all kinds of comforts which 30 years ago we just did not expect. If this makes things hard for them now may be that hardship is a useful lesson to them.
utter rubbish. when me and bf bought in early 90's we were able to buy a terraced house in town for less than twice his not that amazing salary. the equivalent of that salary now wouldn't pay for a quarter of a 1 bed flat.
and yes borrowers have never had it so good but that is 'existing' borrowers - the people who over borrowed a while back and whose debts are being subsidised at the expense of pension funds, savings, etc.
we could just go in circles with you conveniently forgetting what has already been said and shown on this thread xenia. you could have say 3 sticks you cling to - when stick 3 is utterly disproven you can go back to stick 1 and pretend it hasn't already been disproven.
i can never work out if you do this deliberately or if maybe you have some kind of very narrow cognitive field that fades out everything that doesn't fit with it's monofocus - not slating you - maybe that's why you are successful - that ability to just focus on you and your opinion and dismiss, ignore, not care about anything that doesn't fit it.
My parents back in the 70's were able to buy a 3 bed terrace in London my mum was a dinner lady and my dad a postman.
In he early 80's I was earning about 18k I was able to buy a 2 bed with a garden in London on my own. Then the recession hit in the 90's and I lost my job - 3 times I got made redundant - I worked my arse off working a 9 -5, an evening job and a weekend job - but with interest rates at an all time high I was unable to carry on and my home was repossessed.
I now earn about 30k - no hope whatsoever of buying a home now - well yes if I move to the Outer Hebrides but then I won't be able to work!
My parents starting out now would have no hope of buying a small terrace house on the same road they did back in the 70's. In fact as a family we would probably still be living on one room!
Housing is way out of reach of the ordinary working person today - no social housing left unless you are destitute. London Evening Standard is reporting that young professionals earning £40 - £50 are having to move up north to buy, something has to happen and building new homes and schools is the only answer.
London has lost a lot of manufacturing and there are empty factories that could be demolished and social housing be built to rent - Battersea Power station is a prime example, once a working class area - now more luxury apartments being built and Estate Agents releasing the details abroad for foreign investment- this practice has to stop. Paddington basin the same - loads of luxury apartments mostly left empty while all around families are packed into overcrowded sub-standard accommodation. So sad.
so there's evidence that it's not true that the ratio of wages to house price is 'about the same'. no doubt xenia will conveniently ignore it and still assert the falsity though. i don't get that.
Interest only on 95k at only 5% is 400 a month, there are costs to consider as well as periods when the property is empty.
Hence interest portion barely covered by the income from the property. The owner would be paying down the debt, the renter largely paying for the interest.
All the owner (in the loosest use of the term) has done is got a cheap loan in order to buy a depreciating illiquid asset. They have given themselves a job where they have to maintain a property, deal with tenants, agents etc and usually locked up thousands in a deposit.
Unless the place increases in value there is no gain.
Some gained doing this, it was a hell of a gamble, and some got lucky. It's too late to exit profitably now if you bought after 2004.
And more to my point, in so doing they have messed up the market for those looking to buy.
I don't know what the answer is, I really don't. I just wanted to add my voice to others on here.
DH earns approx 3x national average but because we are both 2nd marriage and exs kept the properties, we have 4dc between us and our rent is high,we cant save for a deposit. Not a boast or whinging on our own behalf but if a family with our level of income cant buy a house I think it's indicative of a system that's gone very badly wrong.
To be fair we are lucky, we have a lovely landlord who fixes things properly and is even installing a downstairs loo at our request this year.
how can you say property values won't have risen in 35 years?
How can you say they will? In real terms.
how can you make such an assertion about my financial responsibility
You bought an investment property borrowing heavily on an interest only loan at the height of a bubble when rates are the lowest they have been in 300 years. I don't think you're qualified to judge what is financially responsible.
conveniently forgetting what has already been said and shown on this thread xenia. you could have say 3 sticks you cling to - when stick 3 is utterly disproven you can go back to stick 1 and pretend it hasn't already been disproven
It certainly is odd, Ive given up there but hopefully the messages can be read by people who can see.
I just don't agree buy to let it the main cause of rising house prices. Prices shot up in the 1970s for example
Buy to let mortgages are a relatively recent 'innovation'.
I agree it was irresponsible borrowing of all kinds that created the bubble, not just buy to let, but buy to let is how one average joe could buy multiple properties which has compounded the problem. This is one hell of a bubble that is unwinding this time around. As can be seen on this thread the average joe didn't earn the money and so don't have the aptitude to know what they're doing with it.
Its plainly true however that those who could see the madness for what it was and didn't want to overpay for property were priced out by those who were either reckless or ignorant. Highest bid wins, with the loose lending we had that meant biggest loony 'wins'. If you consider overpaying for property with an enormous loan winning, which sadly many on here at least still do!
I wish you the best of luck guys, hopefully this nonsense in the market can continue to unwind now, we are starting to see promising signs of house prices continuing to fall.
Let's hope it continues for the sake of the prudent and for the young.
MondayTuesday - you have idea whether I borrowed heavily to buy my properties. That is a massive assumption! We could have borrowed the total value of all our mortgages on our joint income (easily) for a single property but instead chose to live in a relatively modest house ourselves and buy investment properties. As I mentioned before, we have saved any income from we've made and paid down the mortgage and now have c60k equity in one of the houses. Some actual figures for you (rather than your speculations), one of the houses has a mortgage of approx 120k and gets in rent approx £1300 a month. Our salaries have more than doubled since we bought them 5 years ago. It really was not that big of a risk as we can ride out rises in interests rates etc.
We have student properties in an area near a university mainly populated by (surprise surprise) students - they want and need rental properties! We provide clean and well equipped houses for the going rate. Student houses are notoriously harder as you look for new tenants on an annual basis and this gives some uncertainty. However, as our properties are so well maintained they have always been taken up very quickly. How am I the devil incarnate just because I am a BTL landlord.
And to repeat myself again, we have no employer contribution towards a pension plan so our investments are intended to help us in retirement, removing our need to rely on the state. I am not bitter towards those in the public sector who have provision made for them and don't expect any bitterness from others about our choices.
you have idea whether I borrowed heavily to buy my properties. That is a massive assumption!
True enough. You did say it was interest only, usually that means a large amount was borrowed. It was however an assumption.
However even if you can afford to lose a lot of money I still maintain that it is not a desirable thing to do.
I will spell it out, buying when rates are low is a bad idea because prices are high. If you are borrowing to buy when rates are low you will experience higher repayments in the future which you may not have budgeted for because when rates are low they have only one way to go, and thats up. Presumably I don't need to explain why it is bad to buy when prices are high.
Far better to buy when rates are high, particularly if you have little borrowing required. This is because prices will be lower, and if you are borrowing in order to buy high rates tend to come down making the interest part of the repayment smaller.
You did buy at the top of a bubble, you did buy when rates were low with some borrowed money, this is unwise and in my view will lose you money whilst at the same time keeping prices inflated for the rest of us.
I am not bitter towards those in the public sector who have provision made for them
Your provision is harmful to others.
Simon Ward, chief UK economist said rates will rise from their current record low of 0.5pc to 1pc in the second half of the year.
Andrew Lilico, at Europe Economics, said he hopes we finally get a rise, and Andrew Sentance, a former member of the Monetary Policy Committee, said that inflation should be brought more firmly under control and interest rate rises should be on the agenda.
Mr Ward has a track record of correctly predicting interest rate increases, even when it is against consensus opinion
Just 0.5% will be enough for hundreds of thousands of mortgage pages to hit the ropes.
Take just about any 50 year period in British history and prices will rise. We all remember the losses of teh 1970s, the huge 90s crash (when we sold two buy to lets bought at £60k and sold at £40K) - you can plot a rough graph but if you are ni the property party for the long haul decades it tends to be a good buy. I really don't think there will be a 50% reduction in prices which will remain 50% cut for 40 years. It just won't happen.
As for who can afford and who cannot, most people never bought houses in the UK, could not afford to. Only relatively recently so many could and perhaps we are just reverting to the norm when most could not afford it after some years when more than usual could.
I certainly agree there has been house price inflation more than wages but wages have risen and interest rates are very very low which means you can borrow double and it costs the same as it did back 20 years ago when you might be paying 12% not 3 - 5% you might be paying today so not everytnigi s comparable. The house we bought for £40k in 84 when we each earned £7500 is is on that road now selling for £275k and those £7500 salaries are about £44k in the same two fields in which we were. You can buy flats in this bit of outer London where I am for £150,000. If two of you have a salary for £30k, not that unusual for outer London 3.5x that is £210k,. Those starter flats are affordable. If you are on £20k each - £40k x 3.5 = £140k. These places are not out of reach although the luxury perfect home you might see on television might be.
house price inflation more than wages but wages have risen
I think you'll find wages at the top of the pay scale have risen - I work in recruitment and I'm still working on the same salaries as I was 20 years ago for PA's and office support staff - Starting at £18k and tops about £35k on average.
BTL mortgages are almost always interest only, that's why we took the decision to save any profit and pay down the mortgage between products. Sensible.
We have made sure we can cover the cost of all the mortages at the current interest rate and should they rise in the coming years. We could do this when we bought the properties 5 years ago and our salaries have more that doubled since. Sensible.
In the absence of a pension plan, how would you suggest we save for our retirement? Interest rates are low and investments too risky for us. Property has been a solid investment over the long term for generations and provides the most secure way for us to grow our money.
Repeating myself again, we have bought very near a university and let to students where there is most definitely a need! People who have rented from us as undergraduates have often let again as young professionals when they want independence from family but are not ready to buy. Again a need!
BTL mortgages are almost always interest only
Yes they are dangerous indeed. Inherently the assumption is that prices will rise forever and ever, in real terms. Rather you than me!
we can cover the cost of all the mortages at the current interest rate and should they rise in the coming years
So you can afford to lose your money, does that make it ok to do so?
investments too risky for us. Property has been a solid investment
Investments are risky but property is ok? Does that mean it isn't an investment? Your 'investment' can go down as well as up. Past performance is not an indicator or future performance.
provides the most secure way for us to grow our money
There is no growth here, you bought at the peak.
how would you suggest we save for our retirement?
Anything is better than buying right at the peak with borrowed money at low rates. You'd have done better with cash in the bank. Rates will not stay low until your retirement.
It's up to you what you do with your money, Im merely pointing out the reality of the situation, if you don't agree what does it matter, you've done it now so it's a bit late anyway. Are you trying to convince me or yourself?
I hope others consider things a little more thoroughly.
Seriously Mondaytuesday! You really aren't listening. We make c£800 profit after mortgage/putting some aside for upkeep on one of our houses every single month. Are you telling me that is not a good investment? We're certainly not losing money. I think you hear only what you want to hear from my posts.
And for the umpteenth time, I mean grow our money over 35 year plus period so the fact that we bought in 2007 is a red herring. Even if prices haven't risen in the period since I'm still happy with the profit we've seen from the properties.
And you piqued my curiosity so I had a look at the (popular university) area where we bought the houses and it would seen that prices have stayed pretty static since 2007.
I wouldn't be too concerned for me really.
You won't know how much you've lost until you come to sell. I wish you the best of luck.
If we sell all 3 of our properties for half what we paid for them in 30 years time we'll more than likely be up overall based simply on the level of income we see from them. I think this is unlikely however and if house prices are half the price of now that far into the future I will eat my hat.
Generally people who put their money into property over 30 yeras do better than those who waste it on eating out, drinking, shoes and the like. Most landlords sacrifice things to invest in a property in the hope that over the decades that pays off. For some people if they did not have those loan payments going out they might just spend the money so it can be a useful savings tool as well. There will price drops, price freezes often over several years but on the whole it is likely to rise. We have not yet had a period where prices never reached again a previous high. We would have to have deflation for decades for that to be so which is pretty unlikely.
Even if you make a loss as we did (I am good at writing about my various life failures, there are many) if you reinvest in property, as we did, over time that still means you can do well - we put the money into a house which then rose in value many many times fold the buy to let losses.
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