To wonder how we managed our mortgage when interest rates were 13.6%

[BlueBloodedBlue]

We bought our flat in 1990 with a mortgage rate of 13.6%

I know house prices were much lower but so were wages.

I'm obviously not minimising the current nightmare situation so many people are facing, I just don't really understand the economics so would be grateful if anyone is able to explain in simple terms please?

House prices in relation to wages were in a lower proportion in the early 90s - but there was also a recession and a lot of people lost their jobs. There were a lot of repossessions and house prices slumped. Even back then you could get a mortgage for 95% of the purchase price so people also fell into negative equity.

House prices only really got out of control after Blair got into power - there was a hiatus during the global financial crisis but has been continuing for about 10 years. Interest rates have been too low for that period particularly recently meaning it is cheap to borrow and the loose monetary (and fiscal for that matter) policy means that the money finds its way into asset prices ie houses and people can borrow cheaply

The human cost of that all too obvious on some of the other threads on here

It’s not comparable. For example say how much was the flat? 3% interest on 200k is 6k for simplicity sake. 13% on 50k is 6500. But repaying capital of 50k is a lot easier than 200k. That’s why things are different now. I’ve simplified it obviously, but your get the picture-you’re not just paying interest but repaying the debt as well.

@bellac11 but who is doing the unnecessary spending?

It worries me that there becomes a rebuttal and refusal to think about how to spend sensibly, too boring probably.

Because so much of the narrative is nonsense.

actually don't answer, I can't be bothered to engage.

I dunno why people seem to think they were so conservative with their money in the 90s because they didn’t buy things that didn’t exist 😂 ‘we were better people back then because we didn’t buy iPhones’.

Some people just refuse to accept a lot of their life was luck and not due to work hard. It doesn’t mean they didn’t work hard but to ignore that fact that it was significantly easier to get on the property ladder in the 90s is just denying the facts.

@bellac11 I interpreted your comments as to blaming discretionary spending rather than vastly inflated house prices as the reason younger generations have had more trouble affording houses than their older counterparts. I disagree with that position. Apologies if I misinterpreted.

Why are you talking bullshit about me?

tbf @bellac11 can talk bullshit all by themselves 😆

Still engaging, then. 🤔

We shared a car, had no phones, had no Sky tv or broadband and hardly ever went out. I’m not sure a lot of people are prepared to do that now. That’s the problem

This is bollocks quite honestly when there are plenty of working people who can't have the heating on this winter and will have to rely on food banks. A lot of it is boomers and Gen X making themselves feel better. It's not fair. Younger people have been shafted. Bank of mum and dad often got that money through sheer good fortune and being born at the right time.

Me and my friends were able to buy flats of our own on one salary 25 years ago. The same jobs we had have the same or less salary now with worse conditions (perks, sick pay, prospects.) It's just not comparable at all. That's not to mention student loans. Generational inequality has got way out of hand.

It's no good looking back
Forwards and onwards
The young have it hard and I thought I did too
It's nothing compared to today :(

We bought our first home in 1990 ….the highest interest rate we paid was 15.4% ….I just thought that was the norm…..we didn’t have much….we both worked full time for nhs and local government…..we never took out any loans….or store cards…..I was terrified of debt…. The only debt we had was the mortgage…..we never had a new car…..we had 2nd hand furniture and my youngest learnt to crawl on a concrete lounge floor whilst we saved for a carpet…..the good old days?? …..I think not 🙄…… fast forward to now though and life is pretty good….late 50s…..we have both retired and returned to 2 day posts along with good public sector pensions and lump sums…..we paid our mortgage off 9 years ago…..the relief was massive…..times change….hopefully this time won’t last

I didnt imply that or say that. Im talking about how the whole lifestyle has changed for people and that all finances are included when looking at how affordable life is. Its just a fact, no need to sneer and snide at what I was saying.

in my public sector job wages have approximately doubled since 1990. The price of my house ( according to zoopla) has gone up 6 x..

of course 13% interest was shit. But the numbers are just not comparable now.

I think I understand what you’re talking about, bellac11.
There’s a lot of indulgences in my life now that I didn’t have back in the late 80s, and I enjoy them immensely. I can certainly cut back quite a lot if necessary. Not enough by any means to afford a house on my current salary, but enough to keep the house I bought in the late 90s and pay bills without having to choose between heat or food. But I know dozens not in that position, and who will never get out of the SE trap of paying rent at 3x the price of my mortgage, and being unable to afford to buy.

Of course reading here it’s because we all spend too much money on non essentials like the internet or a phone! in 2022 or have two cars because we work in opposite directions and can’t car share. How dare we chose too eat out. Yup modern house buyers apparently it’s all your fault you want an expensive house that comes with an expensive mortgage when in reality it’s a bog standard three bed.

What do you mean you can’t get anything cheaper? That’s your fault for being greedy and wanting a house! What your wages haven’t risen beyond inflation for ten years? Yeah your fault you should work harder or get a better job like we had to.

Honestly some of these replies!
I was a teen in the mid 1990s, My parents were always buying new things on credit. Probably were told they were purchased that weren’t needed I’m sure. we had a PC by 96, local internet and everything. It’s not limited to modern living.

Don't forget young people aren't having dc so early or so many, that makes the internet more affordable.

Well my parents bought a 4 bed in the 90’s for £110,000, which they recently sold for £750,000. The loan to value was much lower then. Salaries haven’t increased by anywhere like that.

OK, in 1990, the flat cost £75,000 and our joint income was £18,000 (mine £8,000, DH's £10k) so 4.1x income with no deposit.

The same flat (well next door) sold for £251,000 in 2019 so you would need a joint income of just over £61,000 now to buy on the same basis.

13.6% of 75,000 was £850 a month (10,200/12) 56% of monthly gross income

Even assuming mortgage rates go up to 4%, that's 4% of 251k which is £837 pm (10,040/12).

But as has been pointed out, we now have costs that just didn't exist then.

Rent is so high there is no room to save, rent would have been cheaper back then, plus you now need a ridiculous deposit, you get lent approx 4x your salary so say you earn combined 30k because wages are so low then that's a 150k house and house prices are at least 200k now. It's so difficult all around

Sorry 5 x salary**

Precisely this.
My parents bought a four bedroom Victorian detached house on a teacher’s salary in the 1980s. We went to school with holes in our shoes and had maybe one or two out of school outfits so they could pay the mortgage. That house will be worth hundreds of thousands of pounds now, and no way a teacher could afford it. I wouldn’t be able to afford it.

Where does the motivation to blame peoples spending & the refusal to acknowledge that things have changed come from though?

I think also as you get older you want to put up with less.

I didnt have a car until middle age, when we moved out of London, same for my OH, didnt need it. But now we live somewhere impossible, or nearly impossible without your own transport, but even if we did have good public transport Ive grown used to it. I remember when I got it we were still in London at the time, I thought how have I gone for so long without this. My mum also didnt drive so I grew up on buses and tubes and thought nothing of it. I wouldnt like it now of course, Ive got too lazy.

First house in 1980s had interest rates in excess of 15%, cost was one of our total monthly wages, but we just managed. No frills, no takeaways, one pub outing a month

But your scenario is flawed.

If you use the examples I linked to upthread and apply your theoretical interest rates of 14% and 6% (and obviously most people would not have a 100% mortgage in either scenarios, but the ratios still hold)

1990 - household income of £12,353, at a time when the average house cost about £57,726
use 14% rate and assume 100% mortgage for simplicity
mortgage interest was £8,081
which was 65% of household income

2020 - average household income was £37,108 and the average house price was about £234,947
use 6% rate and assume 100% mortgage for simplicity
Mortgage interest £14,096
which is 38% of household income

Its still shit, and more than people can afford, but let’s not pretend that it was all easy in the past.

The other mistake is in using averages (ironic given my example). There are areas, particularly in the South East that sit far outside the average and where house price growth, as comparison to wage growth, has been much steeper than other area of the country.