To wonder where the money is coming from to buy houses?

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So, if houses used to be (say) 4-5x average annual salary back in the olden days of the boomers.

And now house prices are 10 X average salary... Bit they're still being bought, and people want to buy...

Where is this money coming from?

Are boomer parents artificially inflating house prices by giving huge sums of money by releasing equity etc?

Who is buying the expensive houses??

It's all changed. As Babyboomers, prices were lower as were expectations and we didn't have stamp duty. Mortgage rates were a lot higher (17+%) though.

House prices have gone up a lot, but we paid a lot more in interest and inflation was much higher too, so people needed the house prices to rise to avoid negative equity. Personally, I think stamp duty has pushed up prices a lot too and reduced the rate of people moving. It certainly stopped us from moving as often. If people move less often, the availability of houses to buy goes down too. Couple that with less house building and greater expectations it's really not surprising that houses prices have gone up so much.

85 per cent of first-time buyers get cash from family.

I’m in London & don’t know anyone who got a mortgage singlehandedly. Not professionals, no one - two barristers is maybe the only exception cos they might have afforded it without granny dying, who knows.

@Seashor

My son has just bought a house with his girlfriend. 70 thousand deposit. They worked their arses off, didn’t spend on false nails, hair, etc. They lived at home and they didn’t decide to have children and then bleat on about how the ‘Boomers’ had it so easy. They didn’t! They were also prepared to move to a cheaper area.

Yes, if our children all just give up their false nails when they reach their 20s, everything will be just fine.

Please.

People have to live where they can pursue their careers.
Houses tend to be more expensive in areas with lots of jobs.
Most of us aren't in a position to help our children with large deposits, and living at home only works if they can easily commute to a job from their parent's home.

@Seashor

My son has just bought a house with his girlfriend. 70 thousand deposit. They worked their arses off, didn’t spend on false nails, hair, etc. They lived at home and they didn’t decide to have children and then bleat on about how the ‘Boomers’ had it so easy. They didn’t! They were also prepared to move to a cheaper area.

Hope your son can get back having false nails soon

To save £70k as a young couple is just massively out of reach for some and it’s disingenuous to pretend it’s easily achieved

You don't need to save that much though. You can get a mortgage with a 5% deposit. So, for a house at £200,000, you need £10,000 deposit. That's quite easy if a couple are both in full time employment, and can stay with parent(s) whilst saving.

We bought our first house ten years ago, partly with savings and largely with inheritance. We COULD have scrimped for years but I'm bloody glad we didn't have to.

It is do-able, albeit much harder than it was in the 80s/90s.

My anecdote = DS & DIL. They do not earn high salaries at all, around £55k joint. They returned to parents and curtailed all outgoings to save about £25k then bought a 2 bed place in a cheaper part of town for £265k. We are in Essex, commuter town.

As I say, not as easy as my first purchase (£35k 1 bed flat on single income of £12k, no help), but do-able.

You can see the effect everywhere of housing, particularly mortgages, hoovering up so much disposable income.

Why do we have such a poor choice of high street, and online, clothing stores now compared to 25 years ago? Why are the clothes and shoes we are being sold (generally speaking) such crap quality compared to the 1990s and early 2000s? Why are there so few decent mid-market retailers that haven’t gone bust and been snapped up by BooHoo.com? Because all the money that might have been spent buying nice things by wage earning adults is going into servicing mortgage debt.

Why are so many cars sold on the never never (aka PCP schemes, in which you rent a car you can’t afford but never actually own it)? Because all the money that might have been saved to buy cars outright or with a personal loan is going into servicing mortgage debt.

Why has the government had to default people into occupational pension schemes, that you must opt out of, rather than into? Why do so few people have decent pension provision? Because all the money that might have been saved or invested on a discretionary basis is servicing mortgage debt.

The saddest thing is, I’ve seen several posts on here by people rejoicing that their house has increased in value because they think that they have made a profit. They haven’t. Not unless yours is the only house whose value has increased, or you plan to move into a yurt. You’re actually worse off because when you want to buy a bigger house (that fictional property ladder again), you’re back to square one with a new long term mortgage that you’ll still paying off in your late sixties.

Personally, I think stamp duty has pushed up prices a lot too and reduced the rate of people moving. It certainly stopped us from moving as often.

I don't know about pushing prices up, but you're totally right about people moving less often. High stamp duty has made the "frictional" costs of moving astronomical. You really don't want to do it any more often than absolutely necessary, because each time you do a significant chunk of equity gets handed over in tax.

I think the main consequence of this is to have abolished the housing "ladder". I don't know why people still use that phrase, it's been irrelevant for at least twenty years. The metaphor of the ladder was that you climbed up, step by step, buying, then selling and buying somewhere sightly bigger, every few years, until you reached the top. If you buy and sell every few years now, you'll never get anywhere because all your money will go in stamp duty!

2 incomes, and longer mortgage terms.

I think my parents had a 15yrs mortgage or possibly 20yrs? Its much more common to have a 30 or 35yrs mortgage now. You can even be considered for a 40yr mortgage.

Hope your son can get back having false nails soon

Hahahaha. And his false hair:

They worked their arses off, didn’t spend on false nails, hair, etc

This topic bothers me greatly... When I was a child my mum was a sahm parent for my entire childhood only went back to work in her 50's, my dad wasnt a high earner by any stretch but still managed to buy us a decent home. I've just returned to work oldest is 5. Dh earns a good salary, Im part time to balance dh long hours/shift patterns and because childcare is more than my wage so pointless really... But combined is a decent amount... To buy a house in my area were looking at 6.6 x our combined income... And that's for a house that is very dated and needs work. My parents moved away when I was 19 so I was pushed into renting and have forever struggled to get a deposit together. We won't be getting any inheritance ever and with rent in excess of a grand a month it's unlikely we'll ever buy.

Oh, is it false nails and hair (of some unspecified description) now? Not avocados?

That's quite easy if a couple are both in full time employment, and can stay with parent(s) whilst saving.

Ha ha ha. Yeah, everything is easy if you have parents who can and will help. That's the problem. Those of us who don't can just vanish I suppose.

It makes a complete mockery of the idea of working and of capitalism as a whole. If you can't exchange your labour for anything of value, what's the point? And what do we do??

when we bought our first house (ex council in cheaper area with issues) you could only get repayment mortgage from housing association not banks & it was before wholesale right to buy council sell off.
if it was a Victorian house you had to have up to 30% deposit & a high deposit for flat conversations too, We had to have savings (over time period to show that we could afford mortgage) in building society. Our mortgage interest went from 10% to 16% during the early days by the by. We were allowed 2 and half times dh salary & half mine - no more than that hence increases (set by estate agents & mortgage providers rose slightly slower - but!!! - conservative government (Thatcher?) opened mortgage providers to Banks etc & because they are more commercially orientated than old fashioned building societies we landed up with lots of different supposedly advantageous (& historically many screwed the people who used them & where shut down because of it - aka new houses who quoted one figure reduced it but the purchaser still got all the amount so 100% mortgage & than the person landed up with negative equity much like help to buy makes people vulnerable to, etc etc etc insurance backed mortgages which promised dividends & landed up in negative ) The updated council house sell off - 80's? -meant houses where purchased for low figures etc)
I primarily blame the banks & government - if you don't/can't pay they took back the house & people still had to pay for the debt & the banks could sell the house. This meant that it didn't really matter whether you could afford the mortgage or not.
Now of course both salaries are taken into account as well

The saddest thing is, I’ve seen several posts on here by people rejoicing that their house has increased in value because they think that they have made a profit. They haven’t. Not unless yours is the only house whose value has increased, or you plan to move into a yurt.

No. You have made a profit if your house has increased in value MORE than the average increase. So we made a profit on our last house because we added value. Same with this house we are in now - average house prices have risen 12%, ours has risen much more than that because we have added value, more than we have spent on it. We don't intend to sell though, but it does mean when we remortgage we get a better LTV rate.

There are bonuses to the value of your house increasing beyond using equity to move. As I mentioned, when we last remortgaged the valuation took us under 60% LTV and we got access to a really low 5 year rate. Some people remortgage, take out a relatively small amount from the equity and add a bedroom, avoiding having to move.

@Iamthewombat exactly & yet so many people celebrate that their house has gone up in value 🤦🏻‍♀️

To truely compare costs between different times I think one of the big factors to remember is the drop in interest rates. When I bought my first house in 1988 the average mortgage rate was around 10%, now it is more like 2.5%. So for every £100K borrowed then, you paid back £10K per annum in interest alone, now you can borrow £400K and pay the same amount in interest. It was the amount of interest which worried us then rather than the amount of capital being repaid each month.
I do worry now with signs of inflation creeping up that interest rates might go the same way, house prices could drop if that happens, good news for first time buyers but it means the horrors of negative equity could return with people getting stuck in unsuitable properties with no means of escape due their mortgages being far larger than the properties worth.

@Iamthewombat

You can see the effect everywhere of housing, particularly mortgages, hoovering up so much disposable income.

Why do we have such a poor choice of high street, and online, clothing stores now compared to 25 years ago? Why are the clothes and shoes we are being sold (generally speaking) such crap quality compared to the 1990s and early 2000s? Why are there so few decent mid-market retailers that haven’t gone bust and been snapped up by BooHoo.com? Because all the money that might have been spent buying nice things by wage earning adults is going into servicing mortgage debt.

Why are so many cars sold on the never never (aka PCP schemes, in which you rent a car you can’t afford but never actually own it)? Because all the money that might have been saved to buy cars outright or with a personal loan is going into servicing mortgage debt.

Why has the government had to default people into occupational pension schemes, that you must opt out of, rather than into? Why do so few people have decent pension provision? Because all the money that might have been saved or invested on a discretionary basis is servicing mortgage debt.

The saddest thing is, I’ve seen several posts on here by people rejoicing that their house has increased in value because they think that they have made a profit. They haven’t. Not unless yours is the only house whose value has increased, or you plan to move into a yurt. You’re actually worse off because when you want to buy a bigger house (that fictional property ladder again), you’re back to square one with a new long term mortgage that you’ll still paying off in your late sixties.

Thats not really true. Unless I'm really stupid but

Using easy numbers:
If you buy a house for £100,000 with a £10k deposit and 5 years later your house is worth £150,000 and let's say you've repaid £20k in mortgage payments. Then you now own £80k worth of asset. But you've only paid in £30k.

If you go to buy another house that is £150k then you now have £80k deposit to put down (more than 50%, giving you better interest rates and terms) - you will of course have stamp duty, legal costs, removals etc - but there comes a point where the increase value in your home covers this.

That's why ppl rejoice!

Or alternatively the increase in value gives them the deposit amount to be able to move up the ladder but keep their mortgage payments around the same and on the same term length.

Least that's how I see it??

[quote weansu]@Iamthewombat exactly & yet so many people celebrate that their house has gone up in value 🤦🏻‍♀️[/quote]
Again, there's benefits beyond moving up the ladder!

If you go to buy another house that is £150k then you now have £80k deposit to put down (more than 50%, giving you better interest rates and terms) - you will of course have stamp duty, legal costs, removals etc - but there comes a point where the increase value in your home covers this.

Most people don't move from a £150k house to a £150k house. House 2 would be more likely to cost say £250k if you want a 3 bed from a 2. Unless you move to Sunderland.

If you go to buy another house that is £150k then you now have £80k deposit to put down (more than 50%, giving you better interest rates and terms) - you will of course have stamp duty, legal costs, removals etc - but there comes a point where the increase value in your home covers this.

But you're buying a house that's worth the same as the house you're living in now.

I realise you might be moving to change areas and you might get different bang for your buck between cities. But generally, if people move to "climb the ladder", they're moving to a more expensive/valuable property than the one they're living in is worth now. So yes, they get the deposit but they also get a stonking new mortgage on top of it.

@BulletTrain

If you go to buy another house that is £150k then you now have £80k deposit to put down (more than 50%, giving you better interest rates and terms) - you will of course have stamp duty, legal costs, removals etc - but there comes a point where the increase value in your home covers this.

Most people don't move from a £150k house to a £150k house. House 2 would be more likely to cost say £250k if you want a 3 bed from a 2. Unless you move to Sunderland.

But if you remortgage, that's essentially what you are doing, and it benefits you.

As Babyboomers, prices were lower as were expectations and we didn't have stamp duty. Mortgage rates were a lot higher (17+%) though.

Stamp duty land tax, or it’s predecessor, was introduced in the 1950s and applied to houses bought for £30k or more. That wouldn’t have been difficult from the early 1980s onwards.

Mortgage interest rates were only that high for a relatively short period. They peaked with BoE base rate in the late 1970s and again in the early 1990s. In between, rates were much lower.

People buying houses from 1983 until the mid 1990s, when it became essentially worthless, also benefited from MIRAS, mortgage interest relief at source, which got you a deduction on your personal taxes for your mortgage interest. That certainly would have alleviated the pain!

House prices have gone up a lot, but we paid a lot more in interest and inflation was much higher too, so people needed the house prices to rise to avoid negative equity.

Eh? How do you work that one out? Inflation didn’t cause negative equity. Quite the opposite. High inflation tends to inflate away debt, particularly when, as was the case in the 1970s and early 1980s, wage increases broadly kept pace with inflation.

Negative equity is caused when people buy into asset bubbles at the top of the market, using borrowed money, and find that they can’t sell the asset for enough to clear the borrowings. Despite the horror with which it is spoken about, it’s not a disaster. You don’t lose your house because of negative equity. You’re still living in it and paying the mortgage. It’s just that you bought at the wrong time.