Are we all dooooooooooooooooooooomed?

[padboz]

www.bbc.co.uk/radio4/today/

the actually started mentioning the words 'full blown depression' - not recession - on the today programme this morning.

Am I going to need a wheelbarrow full of cash to buy a loaf of bread and a gun to ward off the rioters?

I know two 20 odd year olds (who can't remember anything other than lovelyness) who are buying first home now. I am right to be worried for them, aren't I? I really want to say something but you cant go to newly weds and say 'DONT DO IT, stay living with your mother!' Oh dear. They've saved like stink and I fear they'll lose it all.

maybe I'm being a little blond........but if you're buying a house - and don't intend to move any time in the even remotely foreseeable future (ie you intend to be there for a LOOOOOOONG time) would it really affect you that much??

You are right FAQ as long as you are able to keep paying the mortgage whatever happens to interest rates/general inflation. Even if you are wanting to trade up, as long as you avoid negative equity you are better off with lower house prices.

Well, yes, it would, FAQ, if you do not have a fixed-interest rate mortgage for the length of the term. It could and would hit you if you have a fixed-rate for only a set length of time, say, five years out of the 20 year mortgage, and when the five years are up, the interest rate has spiked, leaving you unable to pay, yet probably unable to sell up for enough to downsize.

I just think they should wait a bit - they'll get a lot more for their money at the very least.

This is truly the only country I have ever lived in or visited where 18-year-olds expect to be able to buy their own home.

It's most unusual in that respect.

depends on interest rates, FAQ, if they rise and you can't meet your repayments, you will be repossessed,as happened to many many people 15 odd years ago.

When house prices were increasing much faster than any ordinary person could hope to save the difference, waiting and saving made no sense. If you could buy you did, people would buy anything they could, just to get on that "ladder". Where they often remain trapped on the first rung. When house prices stop increasing so fast, I suspect many teens and twenty-somethings will lose all sense of urgency about getting a mortgage. If they are falling, most people will wait expecting that they can get a home in a better area or with more space next year.

Padboz - I have been in exactly that position and I told the couple in question what I thought would happen, emphasising that I did not really know. They did not like hearing it and went ahead with the purchase. But that was just before Northern Rock went under. So tell at your own discretion!

This is how bad it has got:

10 years ago we bought a 3 bed house for £40,000

7 years ago we earned a joint income of 60,000

We debated about selling and moving to a bigger house, much nicer area and our wages would have bought us the best area around us and our family, a 5/6 bed executive home type place.

After kids arrived I worked one day a week so yes we have taken a wage cut, but at the same time we radically reduced our spending so daytoday we aren't much worse off.

WE CAN'T AFFORD TO BUY OUR HOUSE!!

Luckily we don't want to move, we love our home, but if we did, we actually couldn't afford to buy our home.

Even if I went back to work fulltime we could only afford to buy a 3 bed teeny tiny house (smaller than we currently have)

That's how feckin stupid the house prices are imo.

The sooner they halve, the better.

Can someone explain to me why people take out mortgages that revert to variable rate after just a couple of years on fixed rate?

Is this a UK thing? I never heard of it anywhere else.

Think it is a UK thing Cote. I was amazed when a French friend told me that he had a fixed mortgage rate for the full term

How can anyone be OK with the risk of a completely unknown interest rates, say, ten years from now? I don't get it.

Our mortgage is not fixed but it is variable within a band of +/- 1%. That is, from about 4% at inception, it can only go up to 5% and go down to 3%. So, not as expensive as a fixed rate and not as risky as a variable rate.

A lot of people just go for fixed rate in France, though. Variable rate exists, but I don't know anyone who has it.

10 years from now you will have paid down a lot of the mortgage so much less vulnerable to interest rate fluctuations. Most people I know are on rolling two year fixes or tracker rates.

Some have admitted they will be in serious trouble when they come to remortgage. I would love to see the statistics on this - how many in the UK on 2yr, 3yr, 5yr fixes but can't seem to find the data anywhere.

Fixed rate is a relatively new thing in the UK. We took out our first mortgage at 8% and over the years it went up to 15% and then on ?Black Monday/Weds it briefly rose to 20%. I just laughed at the 20% as I reckoned most of the country would be struggling to pay that rate. Rates now seem mind-boggling low to us.

Suedonim, they seem low if you have a long memory. The trouble is they don't seem low to people with 100% mortgages at 6 x combined income. I am really that things were allowed to get this bad.

That's what I meant, Upwind. Ikwym about 6X mortgages etc. It seemed as though a madness possessed the nation, a bit like Tulip Fever, when common sense ought to inform that it can't last forever. My own ds bought three yrs ago but luckily not at that sort of salary ratio.

Suedonim - exactly and there is so much uncertainty right now I genuinely have no idea how it will all fall out. I was reassured by our prime minister's announcement yesterday that: "The British people konw this is going to be a tough year, They are already feeling the pinch with their shopping and fuel bills. But they know that the Labour Government has got the economy through tough times in the past."

We can look at Labour's track record and feel reassured. It seems we don't need to worry Mr Brown will keep his promises and there will be "no more boom and bust".

G Brown has no credibility left he is in teh press today saying he will save us all from financial meltdown which is soooo irresponsible as no one has that sort of power and in the US where they had at least some public money available as a rescue package it didn't work and we are so in debt as a nation that I would love to see what they are planning!Thre is only one way to sort this and that is the historic hangover after the big binge

There would be billions in the economy if the Chancellor took the (inevitable, future) step of abolishing public sector pensions. Not for existing public servants, obviously, but for new entrants and raising their salaries to compensate. Likewise, vastly reducing the public sector generally. Trouble is, that is one of Labour's core constituencies. Also GB prefers hidden, short term financial policies (such as selling all our gold at the bottom of the cycle) rather than bold upfront ones.

"There would be billions in the economy if the Chancellor took the (inevitable, future) step of abolishing public sector pensions. Not for existing public servants,"

Shame on you. Why do you think it is inevitable that younger generations today should work long hours to support older generations without being able to look forward to retiring themselves? Why is the solution always raising the retirement age of young workers and cancelling their pensions? Screw the youth of today every way possible - make it so that every job requires an expensive qualification so they are burdened with debt before they even start working.

With lax lending policies and a lack of regulation ensure that house prices go beyond the reach of average families starting out so younger people who are not lucky enough to have help from rich families are forced to rent without any security of tenure and pay other people's pensions that way. Allow public sector spending to get out of control, after all, young people will just have to pay it out of their income tax won't they?

The grey vote is more powerful but young people are becoming more disengaged from society as they realise they won't be rewarded for working hard and can't aspire to the quality of life their parents enjoyed. But that's okay, we can come up with ASBOS and mosquito sirens to keep em under control.

oh I wish they would all fuck right off with their doom and gloom

my house is going on the market next week and I could do without it

Why should public sector pensions be abolished?

Upwind, re "10 years from now you will have paid down a lot of the mortgage so much less vulnerable to interest rate fluctuations"

Uh, no.

Your monthly mortgage payment is calculated (by the bank) such that you pay almost entirely interest at the beginning and almost entirely capital at the end. That is, your exposure does not decrease by much as years go by.

Assuming flat interest rates, you will be making the same mortgage payment for the whole 20 years. If interest rates go up after a certain number of years, your mortgage payment will go up.

Exposure not much lower. Risk definitely not lower.

CoteDAzur - at the end of a ten year fixed-rate repayment mortgage you will have paid down a reasonable portion of the initial loan. You should then be able to get a reasonably good deal remortgaging at a higher loan-to-value-ratio on another 10 year fix if needs be. Your exposure and risk are lower. If I was taking out a mortgage I would probably go for a 10 year fix and then decide what to do at the end of that.

However, at the end of a two year fix, because you pay almost entirely interest at the begining, you will have paid off very little of the capital and if house prices have dropped you might even be in negative equity. Lots of people will be in that position right now. Until recently, after two years people could get a better deal simply because the "value" of their house had gone up. That seems unlikely to happen over the next few years. Negative equity might mean that people are unable to remortgage and get trapped on the Standard Variable Rate, leaving them horribly vulnerable to interest rate fluctuations.

Upwind - The thing is, the difference in rate for a 10-yr fixed (which then converts to variable) and a 20-yr fixed is so low as to be indistinguishable.

Then why go for 10-yr fixed and take the chance of variable rate thereafter? Only makes sense if you think interest rates will be lower than they are now and you will hence get a lower fixed rate.

It is a very risky call.

"You should then be able to get a reasonably good deal remortgaging"

Not if interest rates are significantly higher in ten years, as now looks very likely.