The bankers have enslaved us with their high house prices

[CassandraW]

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.

Yes. We have to have somewhere to live and we will pay through the nose for whichever route, throughout our lives (if we have had to buy in the last few years or rent). There is no real option, hence we are slaves.

Private renting is the most unstable, insecure and stressful way to live. It's hardly surprising people will do pretty much anything to avoid that.

My rent is far cheaper than the mortgage would be. We looked at buying a while back with what we had saved, we would have ended up in a tiny box of a house in a catchment for a dubious school with no real garden and the mortgage would have been higher than our rent.

We now pay less in rent, if you choose wisely you can be secure ( although I accept that may not be the case for everyone) for a house we could not afford to buy at current prices. Rather than a tiny kitchen we have a huge one, rather than being crammed into a tiny house we have space for guests and hopefully children. We have a garden for dd to play in and lovely neighbours in a great location.

What was stressful was trying to sell a house in an area we hated which we bought because we thought we should buy. We sold at a great loss.

Twinkly, whichever way you slice it you are dependant upon the landlord wanting to keep you on as tenants and not wanting to sell. That is not security, no matter how wisely you choose a house.
My rented out property costs me £200 a month mortgage. My tenant pays me £1200 a month. Or will until I give her notice.
She cannot decorate or change the house in any way, it is not hers it is mine.
I would never ever choose to rent but i appreciate plenty don't have that choice but you cannot blame people who do, from buying.

I totally agree with Activate - this is not about reckless lending, it is about borrowing.

Nobody holds your arm behind your back and forces you to take ridiculous multiples or borrow 100% of the value of your property. We do seem to have a society that isn't prepared to work and save up for things. We want it all now. I am as guilty of thinking that way as anybody else. Nobody wants to wait for things but I do at least recognise that it I can't have everything I want and that is isn't wise to get into debt or borrow money that we can't afford to pay back so we don't do it. The banks or any business can push their products as hard as they like but we don't have to buy them.

I am not saying that the banks don't push their products as any other company would do but you don't have to buy them. It seems to me that when it comes to money all common sense goes out the window. The stock market is a prime example - common sense would say that businesses are not worth any less today than they were yesterday, they are still doing the same business, selling the same products but people get scared and sell their stocks and shares for no reason other than everybody else appears to be doing it - stock markets go into free fall and everybody gets into a panic. If nobody sold this wouldn't happen. Market behaviour, be that stock market or housing market or any other financial market, it is as much about psychology as economics.

No but then again paying my mortgage is dependent on both of us keeping our jobs. In the current climate I think dp is much more likely to lose his job than our landlord is likely to sell.

Previously we were tenants on a country estate, tenants have been in the house for decades.

We can decorate if we wish, clearly we can't knock walls down but we chose somewhere that meets our needs.

I can't buy somewhere with a mortgage of £200 a month, if I could of course that would be different. I can buy somewhere but it would mean a lower standard of living for my family. We have savings and if property prices crash and a house we loved came on the market and we both had job security and access to good state schooling- or the one we live in were to be sold we may consider buying. We do save every month in case we want to buy in the future.

I don't blame anyone for buying, we did it in the past. I just don't think renting is necessarily the worst option. For people in our situation it is increasingly the more attractive option.

FFS banks don't hold a gun to your head do they?

Far more insidious than that. You want a home. The vendors & agents say you can't buy a home unless you can pay X.
Scenario 1). The banks say - you want to borrow X? Or X-5%/10%? OK, why not. Here's the money. You buy the house, relieved.
Scenario 2). You say to vendors & agents - I don't think that house should be X. I will offer X-20%. You get laughed out of the office. Someone else comes along who is ready to borrow to buy at the full price.

6 months later, prices for similar property comes to the market at X+20%. You want a home. The vendors & agents say you can't buy a home unless you can pay X+20%.
Scenario 1). The banks say - you want to borrow X+20%? Or X+10%/15%? OK, why not. Here's the money. You buy the house, relieved.
Scenario 2). You say to vendors & agents - I don't think that house should be X+20%. I will offer X. You get laughed out of the office. Someone else comes along who is ready to borrow to buy at the full price.

6 months later............

End result - you will not buy a home unless you are willing to borrow at the level being dictated by the market and allowed by the banks because there is always some bigger fool out there who will pay what's asked and is willing to take on ever increasing debt handed out gladly by the banking system. Prices get pushed up & up with zero control. Goalposts for lending get moved when it gets a bit tricky - increasing salary mulitples, increasing mortgage terms, increasing LTVs, Interest Only etc etc. And where have these come from?

So who is at fault? The person who needs a home? wants a family? (heaven forbid that a two person professional couple should have the audacity to display the desire or even worse expectation to be able to provide a comfortable home for themselves and, if they can afford space for, maybe even a child or two) - or the system which is rapidly pushing the thought of a home further and further away now that in many places homes are simply unaffordable?

'End result - you will not buy a home unless you are willing to borrow at the level being dictated by the market and allowed by the banks because there is always some bigger fool out there who will pay what's asked and is willing to take on ever increasing debt handed out gladly by the banking system.'

Then more fool them!

Yes, it sucks to rent, I should know, we've never owned and now, we never will.

We have a family. Believe it or not, there's no law that says you have to have a mortgage to have a family.

If you can't afford to buy, then tough shit! You either find a way to get your hands on more money or don't buy!

So I have zero sympathy for people who over-stretched themselves.

Maybe there might have been more pressure to change tenancy laws if so many hadn't been foolish enough to borrow more than was prudent.

It is what it is. It can really suck, moving around, but I guess, so can repossession, bankrupcy, losing tens of thousands of pounds because you made a poor financial decision and losing sleep at night worrying about debt. I know which I'd chose!

I'm not saying it's fun, but if people decided to borrow irresponsibly in order not to, they have only themselves to blame.

lachesis - I think I agree with everything you just said - apart from the finding a way to get more money if you mean borrow more. I think many have come to the end of being able to earn more and save more. Prices have gone way beyond that.

Massive reform is needed in the residential housing system - both renting and owner-occupier. The current state of affairs is appalling.

Well, nowadays, I agree, monster, but back in the boom, jobs seemed to be going better, too.

This really resonates with me atm

We moved into rented accomodation last week after finally selling our house for £20k under asking (no chain cash buyer)

We are now in a very sought after village (we could never afford to buy here) Yes, the hosue is small but its (hopefully!) temporary and gives us breathing space to find something we really like.

We only have a small deposit now (£22k) but the rent is only £500 pcm and we have signed up for 6 months to begin with and the landlord cant sell atm because he cant afford to (he bought at the height of the property boom)

Am really hoping that come the spring there will be a glut of houses come on the market and that we find something, but, who knows??

If I could get a big enough house in this village I would sign a long term lease....say 3-5 years.

It's not just house prices that bankers have played their part in, it's rip off after rip off from the financial services industry. There have been so many mis-selling scandals - endowments, pensions, payment protection insurance spring to mind without even checking but there have been loads more.

The financial services industry has got fat by cheating, lying and stealing. And brought the world economy crashing to its knees. Not everyone who works in it is evil - but what the industry has done is, and there are plenty of people who contributed to that.

The current economic crisis has been caused primarily by the greed of individuals, not "the banks". We seem to live in a society where people want to have everything now and aren't prepared to save for it. Its almost as if, well if the celebrities have it then so should I or a bugger it life is too short. Well that's fine but you live by the sword then you die by the sword. We bought at the height of the property boom and only borrowed half of what the banks were willing to lend us. Why? Because if you're paying more than a third of your net income in rent or mortgage then your over stretched. No one was putting a gun to our heads to take the extra loan. At some point in the future we will "trade up" but we will be able to afford it then.

It is this greed that has fuelled the growth in house prices over the last 20 years. If you have a household income of £50k, you're supposed to be able to borrow £175k. If the bank offers you £350k and you take it, then it ups what you can afford to for and pushes up the prices for everything. Yes if the banks weren't willing to lend then you wouldn't be able to borrow that much, but as I said, the banks don't hold a gun to anyones head.

People don't want to blame themselves for being stupid and overstretching themselves so they blame the banks and bankers bonuses. Those big bonuses are for the investment banking and nothing to do with the retail banking parts of a bank business. The vast vast majority of the profits of the big four banks a) come from their non-uk operations and b) come from their non-retail banking arm. It suits both politicians and the public to blame the banks and bankers bonuses so we continue with the myth/lie that bankers are to blame.

If you earn £50k and the bank offers you £350k in credit you are a fool to take it, but they are grossly negligent to offer it.

The crisis we're about to have (as opposed to the last one) is largely attributable to levels of government debt and an unprecedented situation whereby the debt of stable governments of mature economies is not viewed as watertight.

Wondering how the government is going to spin this one "It's still the bankers fault for buying our bonds. The bastards. If they hadn't lent us the money we wouldn't be in debt. Sob."

mylovelymonster, I agree that a couple would be foolish to take the £350k mortgage on the £50k income and therein lies the exact issue that caused both the financial meltdown in 2008 in the US and the property boom in the uk and us that preceded the meltdown. I believe that whether the bank is grossly negligent depends on how you define negligence.

The bank has absolutely no duty of care towards the couple and if they're foolish enough to overstretch themselves, its not the banks problem. Worse case scenario is that in this isolated case they repossess the property, sell it on and recoup their initial loan. The downside is they won't get all that lovely interest, which over the life of a mortgage is usually the same amount as the initial loan.

The negligence in the banking system actually occurred in the US where they did so many of these loans that they ended up with a lot of people not being able to pay when inflation and interest rates rose and the financial system ground to a halt because the loaning banks didn't know how many of these dodgy loans they had made (that's negligence towards their shareholders). Worse they had sold on the loans by repackaging them into financial products each made up of a portfolio of loans and selling them on to other investment banks. When the mortgage bank had no idea how many dodgy loans they had and who could afford to repay them, it meant the investment banks had no idea what the value of their investment/financial products were because they hadn't asked enough questions before acquiring the financial products (so again negligent towards their shareholders).

Not knowing the true value of something means you can't put a value in it in your financial books so you have to write off any profits you are carrying (again negligent towards the shareholders). The new accounting rules which meant banks suddenly had to start writing off lots of profits affected their credit rating so other banks reluctant to lend to them. When one bank does it that's fine but these loans had been sold so many times on that it impacted all the banks so the banks stopped lending to each other as they didn't know who had dodgy investments. The situation arose because the lax financial regulation in the US meant that the mortgage division of a bank could sell these loans onto their investment division of the same bank and that investment division would then repackage the financial product into a different investment and sell those new products onto another bank (which again didn't ask any questions about the underlying revenue streams, being peoples ability to pay their mortgage!).

All of this was technically a US problem except that when the financial system froze in the US it impacted the rest of the world. It impacted us in the UK becauase foolish banks like Northern Rock were sat on lots of these dodgy investments and were themselves "mortgaged" up to the hilt so when the financial system froze, they didn't have any money. That is what made the Governments step in to inject money into the system to get the banks lending to each other again and to nationalise these banks to stop them failing. At that point in time were the banks negligent towards the taxpayer? I would say no, because no one expected the banks to step in and in retrospect the governments should have allowed banks to fail. Had there been tighter financial regulation in the US, the mortgage banks would have stress tested whether they could afford all those dodgy loans and when the accounting rules on valuing their investments came, it wouldn't have caught them out on the hop. Equally better financial regulation in the UK would have meant that our banks here did better stress testing of what would happen if the financial system froze (that was the issue here not the dodgy loans).

Banks are much more cautious now, and probably over cautious in reaction to the 2007/2008 crisis and that's what will cause the next recession. Governments are in trouble now because they have been as negligent individuals. Now the banks are being more cautious it is showing governments that they can't borrow ad infinitum without consequences, which as TheBride says, will be the next recession.

I didn't mean to write an essay but I think that it shows that the financial crisis is so much more complex than blaming the banks. It really comes down to lax financial regulation allowing banks to behave irresponsibly. That financial regulation is ultimately down to the Governments so its easier for them to peddle the myth to the public that's all the banks fault than to face the reality that they fell asleep at the wheel and weren't watching what the banks were doing and that this next recession will be caused by the fact that they were driving a Lamborghini when they could only afford a mini!

I agree completely - it is the deregulation of the system that is the route cause.

For your average homebuyer though, discussing mortgages with a broker or lender, there is a lack of financial savvy and a bit of 'well if everyone's doing it these days then why not' mentality, and far too much trust in 'well, if the professionals say I can afford to borrow this much, and I get to buy that house I want, then let's go for it' .
So individuals over-borrowing has been very foolish, but those offering the larger and larger loans are just as much, if not rather more, culpable, because of their knowledge and financial expertise. The Governments are just as much to blame as they allowed lobbying from the banking sector to gradually erode regulations, allowing them to operate in questionable ways until it's reached the dangerous stage we are now at. And you're right, all the banks are actually looking at is their bottom line - as long as we can still pay it's ok. If we can't, then there is forbearance, but how long that can last, who can say. The working population are pretty much stuffed.

I'm just as mad at everyone involved, TBH! We live very modestly, have no debts and savings (which are now diminishing against inflation rapidly) and would be ok for some time if we both lost our jobs. We've watched the madness develop over the last (12?) years, and am terrified of what the outcome might be for those caught up in it all, and what sort of future our children might expect to have as a result.

My turn to agree with you! I think your point on people having had a 'why not' mentality is spot on. Why and when people forgot the one third rule I am not sure but I remember being taught it at school in the late 80s. I also think coupled with the "why not" mentality, people don't have the "what if" mentality - what if one or both of you lose your jobs or what if interest rates were to be 10%, how would you cope then? I learned these lessons the hard way as my parents and couldn't cope with a job loss and 15% interest rates in the last big recession. There's nothing like seeing your childhood home being repossessed to put the fear of the consequences of over stretching yourself right at the forefront of your mind when taking out a loan. I believe that the vast amount of repossessions and the slight economic recession that followed in 1990-93 is what the Bank of England and other Central Banks are trying to avoid but I feel that there is an inevitability about it all in that interests rates will have to rise (even if its in 3 years time) and people won't be able to afford their homes.

'So i have zero sympathy for people who overstretched themselves'.

Me too. The problem is that this group of people not only give you headache with their moaning but they also effect the economy and small businesses as they dont want to spend on anything else (because they are spending on top flooring or Aga). They are those who go to Restaurants and create problems so they get refound, or they underpay their cleaner or they dont contribute towards teabags and sugar in the office. 'Because we have an enormous mortgage, you know'.

I run a small business and i'm up to here with people negotiating pennies or owning money because 'poor me, i have a huge mortgage'.

The previous generations did compromises. No the best catchment area, no luxurious kitchen extensions and no new flooring every 2 yrs . Fine to do all that if you can afford it. But not if you keep moaning.

There was this whole mentality, too, of 'I work hard, I deserve to at least own a home/drive a certain type of car/live in this area,' etc.

Here's a newsflash: most of world works hard in a way we can scarcely conceive of for not much above FA. Their toil entitles them to avoid starving to death and not much else. Reality is that nearly everyone works hard.

So a fig for your 'I work hard, I deserve. . . '. You deserve what renumeration you can get for your job. If it is not enough for you to reasonably afford to buy a home, then you a) rent b) train for a job that pays more, marry a person with more money, move, etc.

But if you overstretched yourself it's your signatureon the dotted line and no one else's.

Aaah but those who say they 'work hard' they usually dont want to change anything. No, they want to work 30 hrs a week, walk no more than 3 min to the station, live in an area with 'nice cafes'...