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??

Me and DH were lucky enough to buy a cheap new build house 7 years ago with a 10% deposit which was our savings combined. It’s now worth 60k more, and we’ve paid off just over 30k of the mortgage, so we are selling and getting 90k cash… all of which is the deposit for our next house. Absolutely no way would we get a mortgage now for a decent house big enough for our family with a 10% deposit, it’s more like 40% deposit. And the new mortgage is still 35 years.

Friend’s son and his girlfriend, early 20s have just bought their first home. Its a modest terrace, cost about £140k. He’s a mechanic, she’s a nurse, they’ve lived rent free with parents so they could save the deposit. They don’t plan on having children for a long time, and most of their furniture is second hand. There are affordable areas in the UK.

No idea how people in similar jobs afford housing in London and other expensive places.

My nan just gave us £70k to buy our 2nd house. We made quite a good chunk on our first house and now we can afford a 500k house on just my (slightly above average) husband's salary. We are in the South East so we don't get much for half a million here.

It was 3x income1 + 1x income1 OR 2.5x joint income 20-30 years ago, but then we had none of these microscopic interest rates!
And if we end up again with fat interest rates and fat unemployment figures, no doubt prices, and the income multiples, will come down too - or stagnate while inflation "catches things up".

It's all about how much you can spare from your monthly income for 25-30 years...

Well, the expensive houses round here are not first-time-buyer houses. I have friends here in their late 30s/early 40s who, like us, would be on their third house if they moved now. Our home has increased in value by £100k in 9 years, but of course so has everything else in the area.

I wouldn't necessarily expect to sell our 4-bed townhouse to a first time buyer given 10% deposit and legal fees would be over £30k.

10% on our first house though - that would now be £15k which between 2 salaries may be relatively achievable.

Investors. I reckon lots of people are not buying them to live in themselves but to rent out and keep their equity in the property. Perhaps even overseas investors tempted by the weakness of the pound after Brexit and our ever rising property prices.

UK house price inflation has been fairly muted compared to many other countries in and outside Europe in the last couple of decades.

That’s completely wrong - the European Central Bank, unlike the Fed and the BoE, had a remit that included house price inflation in its interest rate policy, so adjusted rates accordingly. There were still property booms in many EU countries (not all), but less so than the U.K., US and Australia.

The difference is that after the financial crisis EU property bubbles were allowed to deflate much more so than in the U.K., where the governments (especially the Tory-led governments) deliberately tried to stop the bubble deflating at all.

Because the baby boomer generation are beginning to die? In the next 10-15 years there will be the greatest transfer of wealth in history. Up to £5.5 trillion in the UK alone will transfer from those born between 1945 - 1965 down to younger generations. 2035 is predicted to be the peak year.

I think people who already have homes and money are buying the houses as investments and then renting them out to tenants, as Air B and Bs

I live in an street where the houses on either side of me are second homes. We have a three bedroom house and 3 DC. The big houses around us (4/5 bedrooms) are either second homes or have been bought by older people (over 60).

I have no idea why they need such big houses. I was talking to one of them who just moved in and he said to me that they have another house in our area by fancied this one, so decided to rent the first one out and move to the new one. I think these people bought a long time ago and built up lots of equity.

*or as air b and bs

Cost of mortgage borrowing has had a significant impact, as well as mortgages over a longer term.

My first mortgage in 2001 was for £70k and cost £650 a month.

My mortgage today is £250k and costs £1100 a month.

Agree 70k doesn't just happen

I had 50k deposit (some of which was communion money!) I was a good earner and saver and was able to move home for for couple of years (which was what really made it happen) to get my first flat.
I also had a lodger for 6 years(!!!) And the market plus renovating meant I made 200k in 6 years.
Alongside this our careers took off.
We then mortgaged ourselves up to our tits to buy our niace house in our mid 30s1

We are unusual in our friendship group.

Looking at couple friends

• couple A husband was given 250k for a flat at uni - it's now worth £1.2m so 950k tax free - they are 32 with decent jobs and own 3 properties now!!!
• couple B. Wife was given 200k house at uni she has a good job he makes 30k or so. They now owns 4 properties
• couple C. Were given around 600k EACH from parents as a wedding gift live in hampstead in 1.5m flat which they then spent 200k renovating
• couple D. No parental help in a one bed and can't afford to move up the ladder or start a family

-couple E. no parental help and about 8 years older than us... live in 600k small terrace and are mortgaged up to tits like us

There are vast swathes of the country where people can still buy a starter house for 3x joint salary, even on low incomes. Full time joint salary is the key

No good if it's not where the jobs are. DH & I lived with my parents while we saved a deposit. I watched in horror as the houses in the area where I grew up climbed out of our reach - and it's a pretty crappy area. Then the surrounding, sightly crappier areas, were out of our reach.

So we had to look further away from where we worked, but that meant it had to be on a train line, which pushed prices up a bit, as otherwise we were getting into the realms of multiple buses taking three hours and for some inexplicable reason one of the buses only ran during term time.

Basically - there's a reason why some areas are cheap, and it's often that there are few job opportunities locally and public transport to places where there are jobs is awkward, expensive and not that reliable.

@Seymour5

Friend’s son and his girlfriend, early 20s have just bought their first home. Its a modest terrace, cost about £140k. He’s a mechanic, she’s a nurse, they’ve lived rent free with parents so they could save the deposit. They don’t plan on having children for a long time, and most of their furniture is second hand. There are affordable areas in the UK.

No idea how people in similar jobs afford housing in London and other expensive places.

I was going to say very similar. Talking about "average" is a nonsense, when you factor in a few houses worth £1m+

My dc and their friends, cousins, peers generally are buying their first properties now. No-one is borrowing 10x their salary.

Generally people are not buying as single people, so you are taking 2 salaries into account. Yes, obviously some get help with deposits, and others are subsidised by living with parents whilst they save (as has always happened). As pps have said, rising house prices mean that people who bought cheaper places previously have equity to move, for example from their first flat or small terrace to their first semi, etc.

@swissmummy12345

Because the baby boomer generation are beginning to die? In the next 10-15 years there will be the greatest transfer of wealth in history. Up to £5.5 trillion in the UK alone will transfer from those born between 1945 - 1965 down to younger generations. 2035 is predicted to be the peak year.

It’s extremely unlikely to transfer down. By 2035 most boomers will need to be spending most of their houses on health and social care, and to afford this they will be selling their houses into a declining market.

The increasing costs of energy, food, and just about everything will mean working adults’ income will be squeezed, and the prospect of raising taxes enough to pay for boomers’ end of life healthcare simply won’t be possible. Hence them needing to sell their houses to afford it. From the next few years onwards their housing wealth is likely to all go on care costs with little left to pass down.

The global economy is only just waking up to the reality that energy and food are going to get more expensive, and the one-off benefits of globalisation are coming to an end. Much of our apparent prosperity in the last two decades has been built on exploiting the difference between the costs of manufacturing and labour in Asia compared to the West. That’s going to come to an end and consumer items are going to start getting more expensive again just as energy and food do too across the globe.

We’ve been living in a kind of economic fantasy for the last 2-3 decades, in which we think we’re making money out of selling houses to each other at ever-increasing prices; but what we’ve been actually doing is creating a merry-go-round of increasing debt, and assuming that our living costs and interest rates will always remain as low as they have been since the millennium.

In the next decade we’ll see a lot of that fantasy unravel.

@Totalwasteofpaper

Agree 70k doesn't just happen

I had 50k deposit (some of which was communion money!) I was a good earner and saver and was able to move home for for couple of years (which was what really made it happen) to get my first flat.
I also had a lodger for 6 years(!!!) And the market plus renovating meant I made 200k in 6 years.
Alongside this our careers took off.
We then mortgaged ourselves up to our tits to buy our niace house in our mid 30s1

We are unusual in our friendship group.

Looking at couple friends

• couple A husband was given 250k for a flat at uni - it's now worth £1.2m so 950k tax free - they are 32 with decent jobs and own 3 properties now!!!
• couple B. Wife was given 200k house at uni she has a good job he makes 30k or so. They now owns 4 properties
• couple C. Were given around 600k EACH from parents as a wedding gift live in hampstead in 1.5m flat which they then spent 200k renovating
• couple D. No parental help in a one bed and can't afford to move up the ladder or start a family

-couple E. no parental help and about 8 years older than us... live in 600k small terrace and are mortgaged up to tits like us

I’m so glad to hear we’re not the only 30 something couple mortgaged up to our tits. It makes me feel less like I’m doing something wrong!

@nightwakingmoon

UK house price inflation has been fairly muted compared to many other countries in and outside Europe in the last couple of decades.

That’s completely wrong - the European Central Bank, unlike the Fed and the BoE, had a remit that included house price inflation in its interest rate policy, so adjusted rates accordingly. There were still property booms in many EU countries (not all), but less so than the U.K., US and Australia.

The difference is that after the financial crisis EU property bubbles were allowed to deflate much more so than in the U.K., where the governments (especially the Tory-led governments) deliberately tried to stop the bubble deflating at all.

What’s that got to do with facts. You know, numbers? Germany, US, France, Japan and others have seen higher house price inflation than the UK. It’s just how it is.

By 2035 most boomers will need to be spending most of their houses on health and social care, and to afford this they will be selling their houses into a declining market

The vast majority of people don’t need health and social care.

40 year mortgages
Bank of mum and dad
COVID grants/savings during lockdowns
Inheritance
Being able to stay at home for a few years
Working two jobs
Giving saving for a house deposit priority over everything else including having dc.
Interest rates
Having Great Job opportunities/good salaries/bonuses etc
Parents downsizing and giving dc some of the equity. Ditto Pensions.

You know, I had 6 grandparents and not one of them ever spent one minute in a care home. One had Macmillan nurses or similar for a few months. Two heart attacks, 4 fast-acting cancers. This was almost all in the last 10 years. Why do people speak as if everyone who is now 70ish is going to have a long slow decline while bleeding money?

@Blossomtoes

By 2035 most boomers will need to be spending most of their houses on health and social care, and to afford this they will be selling their houses into a declining market

The vast majority of people don’t need health and social care.

Are you kidding? Have you been asleep since March 2020 or something?

The people that do need the most health care are the ones over 70. Most of our healthcare budget is spent on older age care and in the last few years before death. There is a big demographic bulge just about to move into the 75+ age bracket, whose care will be more expensive than any generation in U.K. history.

Who’s going to be paying for it? Are you under the impression that the NHS is super flush right now, or that our tax coffers are overflowing with surplus cash?

@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.

False nails are a gateway to poverty at the end of the day. 🙄

The issue is not so much that UK has had (albeit relatively low) house price inflation. Then issue is that wage growth has been suppressed in this country deliberately for two decades. While banks and governments the world over were printing money like it’s going out of fashion, that money was naturally making its way into real estate. In parallel absolute craziness in the UK that started under the Blair government was that wages were artificially suppressed, creating a double whammy. Subsidizing low wages with welfare was the biggest case of economic mismanagement our country has seen in the last 20 years. And it continues to this day, with even more money printing going on. And that’s before you factor in other pressures like uncontrolled immigration.

I think people are prepared to move to slightly cheaper areas and are prepared to commute.
I look at my hometown about 90 minutes train ride away from a major city. We have new housing developments popping up everywhere. Cheapest houses are around 280k for a 2 bed mid terrace property. I doubt many local people will be able to afford to buy these homes as most jobs are warehousing & nmw based.

On the other hand, someone moving further away from the city has the income/ deposit/ equity plus the low interest rate to buy a new build on a fancy commuter estate with names like Greenfield or Station Crossing.

@sst1234 You have it the wrong way round. Wages were suppressed, but by low interest rates. But the low interest rates were designed by central banks to increase asset price speculation. This was driven by the Fed and followed up on by the BoE. (Greenspan and George are on record saying this.) At the time the BoE was independent, and largely followed the Fed in terms of monetary policy, so Blair had nothing to do with it (and in fact is known to be on record as expressing concern over asset price inflation).

Brown, though, ought to have known better. However, this was widespread financial policy across the Anglosphere and the global economy at the time, which was a large part of the problem.

In fact, keeping wage inflation low and stable was not the problem - it would have been a good policy had interest rates remained moderate and lending at normal levels.

The financial crisis of 2008/9 never really went away. The economic imbalances it created are, if anything, more distorted now than then.