The bankers have enslaved us with their high house prices

[CassandraW]

We have just bought my parents house and I?ve been thinking about the differences in our circumstances compared to when they bought it.
Their quality of life was far superior to ours. Mum chose not to work and stayed at home to care for my four sisters and I.
I do not have that choice even though this is our second house like it was for my parents.
My hubby earns more than dad in comparison to the average wage so we should be well off but I have to work because the mortgage is so large.

It seems to me that I am a slave to a bank, while mum enjoyed a much better life.

When New Labour abolished financial regulation by creating the FSA our banks deliberately lent too much money to too many people. They did this to increase house prices.
In 1997 the average house cost only £60,000 but now it costs £160,000. The long term average mortgage rate is 6%. On a 25 year mortgage for every £1 borrowed 92p has to be paid in interest.
The more interest then the more money banks make and the more money they make the more they pay themselves in bonuses. On a £60k house someone had to pay £55k in interest but on a £160k house, the interest is £147k. That means the housing bubble makes bankers an extra £92k in profits on an average house. Just imagine how much extra they are making from all the higher mortgages on all the house sales since they engineered the boom. Even though the base rate is 0.5% banks have not lowered their mortgage rates enough but are making even more profit because they pay savers much less, so their margin is better.

People might think ?yes but look how much money your parents have made?. Here?s the rub. Although it looks like a lot of money ? what it buys is much less compared to what it would have bought before the housing boom. The credit expansion banks used to force house prices up, has created too much inflation. This inflation has eroded the purchasing power of my parents so called ?profit?. They would be no worse off if house prices hadn?t risen so much because although their cash pile would be less, it would buy more.

So the future I face is paying banks a much larger mortgage so they can make their bonuses and spend our money now while it is still worth something. However to do that we both have to work every hour god sends to live in the same house as my parents. It?s not a better house, we just have much more debt to service to buy it. We need the house to double in price just to cover our interest costs. If it goes higher it will just result in higher inflation which will mean any ?profit? will buy less in the future.

The bankers have conned us by allowing joint income mortgages. People have borrowed more which is giving banks more profits. If you look at 3 times main salary plus 1 times second salary, house prices are far too expensive. Though that is what my parents borrowed to by the same house as us. People should refuse to borrow any more than that and wait until house prices decrease, otherwise they are forcing their children into the same life of drudgery, when it?s their time to buy. I would much prefer to work part time and spend more time with the children but in effect I am working all these extra hours just so my bank makes more money.

[lalalonglegs]

I kind of agree (and I think it is very useful for any government to have a largely passive population that can only see beyond making the next mortgage payment) but it's also a question of changing standards and aspirations. My parents bought their house when they married in the 1960s with my dad's (not huge) wage only taken into consideration but they moved in with NO furniture, sitting on boxes etc, many of his relatives took in lodgers to afford a home and so on - they were prepared to get by in a way that most people wouldn't now.

Probably much more significantly, only a much smaller proportion of people tried to buy houses - my father as a working class immigrant was unusual in becoming an owner-occupier - so there was much less competition for the stock that was for sale. There was, of course, much greater provision of council housing and renting privately could be a more long-term prospect - no six-month assured tenancies.

The corollary of only taking into account one earner's wage, you have to remember, is that women were not allowed to make mortgage applications unless they had a male guarantor.

[AnyFuleKno]

it's more complicated than that;

Property developers and their greed has contributed massively to this. When I was looking to buy in our area almost every property at first time buyer level had been "done up", poorly I might add, by some property developer and then out back on the Market at an over inflated price. A symphony of beige Walls and cheap laminate flooring. There was virtually nothing we could buy and do up ourselves

[wannabefree]

I do agree that the house price bubble has enslaved us to a world where both partners HAVE to work in order to be able to afford an average home. If I earn £50K, which is supposed to be double the national average wage, three times salary gives me £150K. That doesn't buy an 'average' house, and that's with an above-average salary.

[Becaroooo]

I completely agree cass

We are currently in rented accomodation after having sold our house...we are lucky in a way as we have got enough money for a - very small - deposit but really not sure what to do atm.

lala makes a good point though...when we married and got our house (1999) we had nothing (well, a bed!) We were lent a sofa, a coffee table, a hoover and dining table by my parents. We had also bought stuff during our engagement (plates, kitchen stuff etc) but we had to save up and buy everything else...TV, Sofas, Furniture etc

When we applied for our mortage we didnt take my earning into account as a) I only worked p/t (due to a chronic health problem) and b) we figured that if we just worked on dh's salary then my wage would pay for extras (like all the stuff we needed and holidays etc)

My BIL's sister was advised (at the height of the property boom) to go for 6 x her and her dh's salary They were told by a mortage provider to "lie if they had to" on their application.

2 years down the line and they had to sell as (surprise surprise) they couldnt afford the repayments.

Just wish I knew what to do in my situation...sit tight and hope house prices fall or jump back on the ladder...sigh...

[Becaroooo]

any Yep. In the (tiny) village where we now live there are loads of lovely cottages....all been/being done up by developers/btl landlords and now on the rental market. We will never be able to afford to buy a house here, which is a shame.

[GrendelsMum]

I think that Lala makes a good point. My parents were talking the other day about how, when they were a young married couple in the late 60s / early 70s, they had a Roberts Radio for entertainment, and it was their pride and joy. It really was the most precious and expensive thing they owned. We have photos of them on holiday for a month in the USA - my mum has two skirts and two shirts, and that is the grand total of her clothing for the summer. They remember that that was considered entirely normal. We spend our money on a much wider range of things today, from consumer goods to clothing.

[minipie]

I think it is a combination of factors.

• mortgage lending has get more generous as Cassandra says. However, nobody has to borrow the amounts the banks will lend them, so it is really people's choice to borrow that much.
  

• more people aspiring to/competing for property ownership as lala says
  

• more women working and earning which means couples with one SAHP have to compete with couples with two WOHP
  

• people now are less willing to save money towards a property by compromising on other things. As Grendel says, our parents' generation didn't buy new furniture, didn't go on expensive holidays, didn't buy phones, computers, Ipods etc, didn't spend much on clothes or beauty, took in lodgers - in order to pay for their property.

[onlylivinggirl]

i agree with minipie- it is multiple factors- the increases started before the deregulation- probably under Thatcher who promoted home onership as a right and also a means to make money. No-one wants to rent long term so the demand for property is huge.
I think the two income thing is a big driver though.

[activate]

The long term average mortgage rate is 6%

Who told you this little nugget? If you have a 6% mortghage rate I would suggest you are doing something wrong

You do know in the 80s mortgage rates hit 14%


On a 25 year mortgage for every £1 borrowed 92p has to be paid in interest.

This hasn't changed

The problem nowadays is simple - it's the I want it mentality and I'll have it mentality

It's the be a borrower - use credit cards mentality

Bankers are salesmen if they think they'll get the money back then they will offer the mortgage - it is your responsibility to decide if you can pay it or not -

the old standby of 2.5 x joint or 3.5 x sole earnings should have stuck in everybody's mind and they should have refused to take out the ridiculous multiples because they wanted it

it is societies greed that has pushed housing up to ridiculous prices - house market is demand and supply - if you are wlling to pay 3 times as much for my house as I paid for it 3 years ago then more fool you

so no I don't agree

it's not the bankers

it's sick society that is to blame

it's avarice and consumerism

[PhyllisDiller]

I am a bit puzzled as to why you blame labour for abolishing financial regulation cassandraw. The sale of mortgages actually became regulated by the FSA in 2004. In 1997, yes, house prices were vastly lower than they are now, but by the time ?mortgage regulation? came into place in 2004 house prices had already seen a huge increase.

If labour could be blamed for anything it was the fact they were too weak to stand up the arrogance of the banks who claimed to be regulating their mortgage sales but who were in actual fact putting profit first.

As for thinking that it has been easier in the past, paying 15% on your mortgage and having beans on toast for weeks on end to keep a roof over your head is not much fun either.

As for the banks conning people into ?allowing? joint income mortgages, there would be an outcry (and rightly so) if they did not, can you imagine going to the bank and being told that only your DH?s income could be taken into account, you would be furious!

What I find odd about this country is that we are obsessed with property ownership, no HAS to pay a mortgage, buying a house is a choice. You could choose to rent, I know many people who do on the basis that life is relaxed, they get to spend more time with their DC?s and after all they can?t take their equity with them when they die. I also know plenty of people who simply would not entertain the idea of renting.

If you really really wanted to work part time and spend more time with the DCs could you sell one of you two houses and cut your outgoings?

[SybilBeddows]

the rental laws in this country don't give the tenant much security; I am told it's different in European countries where more people rent.
I can completely understand why people are prepared to stretch themselves to buy, particularly when they have kids.

[lachesis]

Only if you allowed yourself to be enslaved. No one puts a gun to someone's head and forces them to buy a house.

You only don't have the option because you exercised the choice to buy a house.

You have only yourself to blame for playing into it, so it seems silly to throw the teddy out the pram.

[Miggsie]

Credit card companies have a lot to answer for. My brother's debt just on credit cards is higher than my dad's mortgage was on our family home growing up.

Credit card companies make thousands out of people's greed and short term thinking.

[CassandraW]

minipie,
We thought we were borrowing enough but our bank tried to persuade us to get even more in debt. "You could borrow more and buy a better house". It was only when we told them we were buying our parents house so didn't need any more that they stopped trying to force more debt on us. "Generous" is not a word I would associate with mortgage lending. "Reckless" is a better word and once some people borrow too much and pay too much for a house it forces everyone else to do the same to compete. The bankers know that, it is their plan. The only way the madness can stop is if everyone said no to too much debt because it only makes money for banks, they are lenders!

activate,
"long term average mortgage rate" does exactly what it says on the tin. It is not my mortgage rate it is what people have paid on average according to a B of E report I read.

[larrygrylls]

Why would you blame bankers for lending profitably. It is their job. What went wrong in the U.S (and to a lesser extent here) was lending to people who could never pay the money back in the knowledge that the loans would be sold on to third parties before they became a problem for the bank.

House prices rises have exceeded inflation primarily for demographic reasons. The population has surged and due to empty nesters living older, an increasing divorce rate and massive immigration, there are far more people who need houses than ever before. However, there are not that many new houses due to planning laws etc. It is simple supply and demand.

There is a deeper question to do with the wealth gap between the top of society and "the rest". This has been increasing at a huge rate and causing an absolutely incredible inflation rate in the things that the super rich (and some middle classes) use, such as desirable houses, restaurant prices and private school fees. So, whereas an out-of-london solicitor or senior teacher (for instance) 30 years ago could have afforded a nice house and to send their children to school privately, now they have no chance of doing so.

Before people start blaming "capitalism", what we have had recently is to capitalism what Soviet Russia was to the Kibbutz system in Israel. "Capital" has not done well at all. Those who have done well are a self serving "elite" of politicians, consultants to government, board members of big companies and bankers. However, a lot of bankers are paying the price far more than the politicians, consultants to government and board members of big companies. It is a tiny percentage of bankers who are made for life and a lot who are losing their jobs.

[minipie]

our bank tried to persuade us to get even more in debt. "You could borrow more and buy a better house".

I agree this is unhelpful of your bank, some might say irresponsible. But there are companies everywhere trying to encourage us to buy products we can't afford, in order to make a profit. Why expect banks to be any different? Ultimately it has to be up to the consumer to say no, I can't afford that.

[CassandraW]

PhyllisDiller,
I don't remember 125% mortgages being allowed until the FSA arrived. The problem with the FSA is that they see their role as facilitating more business for banks not regulating banks. It's hardly surprising when the FSA is made up of ex-bankers e.g. Sir James Crosby moved from HBoS to the FSA.

The FSA have been looking into mortgage regulation since 2005. When the financial crisis struck they started talking about fixed LTVs and salary multiples but they haven't actually come up with any new regulations. It's always "tomorrow" for the FSA..... meanwhile there are still plenty of mortgage brokers freely advertising mortgages without proof of income. If you ask the FSA why they allow it, they will say "we are still doing our mortgage review", so anything is allowed until it is completed - but it will never be completed.

[lachesis]

'Credit card companies make thousands out of people's greed and short term thinking.'

And the borrower's greed in wanting everything right now even though they don't have the means to pay for it.

[CassandraW]

larrygrylls,
Banks have lent profitably (for themselves) but not sensibly. There are 300,000 taking taxpayer's cash via the SMI scheme. Since the financial crisis struck over 300,000 people have had to move from repayment mortgages to interest only. If the banks had lent responsibly then those people would be able to stand a drop in income - but because they are so overstretched they cannot.

I only have one house we sold our other and yes it was a choice buying it. It's since we have moved in that I have thought about how our generation have been duped by the banks. If this goes on I fear for the day when our children will want to buy somewhere to live.

[minipie]

Cassandra what about all the other companies we have been duped by?

The TV companies telling us we need a shiny new TV? The car companies telling us we need a shiny new car? The children's companies telling us we must get our children X Y Z or they will be unhappy...?

Do you criticise them in the same way you criticise the banks? Because they are doing exactly the same thing - trying to sell a product (that in some cases the customer cannot afford) in order to make a profit. As I say, ultimately it is up the customer to say no.

[lachesis]

'If the banks had lent responsibly then those people would be able to stand a drop in income - but because they are so overstretched they cannot.'

And if people had borrowed responsibly as well.

Properties are only worth what people can and are willing to pay for them, and it's nonsense to think borrowers were not part and parcel of the rapid rise in house prices as banks.

Back at the top of the boom, we were offered 10x our salary of £20,000. It would have bought a ground-floor ex-LA flat.

But well, anyone who knows how to add and multiply at a basic level could see that would be a stupid agreement to enter into.

So we didn't do it.

People on interest-only mortgages, who knows what will happen in the future, but it's really no one's fault by their own.

[lachesis]

Exactly, minipie. It's like all those people who complain there are too many Tescos about. Well, don't shop there then. If people stop shopping there, they'll have to close shops.

[activate]

seems like a victim thread to me

of course banks try to encourage you to borrow more

do people really not get that bankers, independent financial advisers et al are salesmen

caveat emptor

the problem is people got stupid, greedy and stupidly greedy

[CassandraW]

minipie,
A shiny new TV is not an essential. Somewhere to live is. Though of course you don't have to buy and could rent.

lachesis,
Of course people borrowing too much share the blame - but when the media e.g. BBC, Sky, Daily Express, etc is so biased with their "property INFLATION is good" - it's easy to understand why they fell for it.