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.