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.

I think that goes for the majority of the population, though novice. Quite a basic space costs a great deal of money, and renting seems more expensive than a mortgage (if you have a decent deposit). I don't think it's an option for the majority of the population to live in social housing - just not enough of it. A large outlay on living space is the norm, and not due to negligent borrowing for the most part. Those mortgaged to the hilt are the minority.

Renting is often not more than a new mortgage, it never has been for us. The decent deposit is a big issue. Deposits are tens of thousands of pounds, that is an issue for most people/.

Cassandra - you are only affected by higher house prices if you move house. Stay where you are and you don't need a bigger mortgage.

You are forgetting that supply and demand are interrelated. Banks can't force up house prices beyond what the buyer is prepared to pay. They can't force you to buy a house. Also don't forget the other variable in all this is interest rates which banks have no control over whatsoever. You are massively over-simplifying the house market.

It still goes back to people wanting what they can't afford and losing all sense. It is ironic that when it comes to buying house, the biggest purchase most of us are ever likely to make, some of us are still prepared to take massive risks over whether we can actually afford it in the long term. We don't do that with our supermarket shopping do we - fill the trolley with everything we want regardless of whether or not we can afford it when we get to the checkout. Why do people take the same risk when it comes to housing?

Buyers have been coaxed into paying what they can afford to borrow, and the previous sensible borrowing framework has been systematically removed by.......the banks lobbying and being at the shoulder of the politicians. Although now they've run out of money to lend.
The banks set their lending rates and their pathetic savings rates. It's a win-win on both sides for them.
And again we're paying with our taxes to keep them propped up - so which ever way you cut it, we work for them. God forbid we should get anything out of it.

...and then there's quantitative easing which improves liquidity for the banking system but devalues the currency, so those of us that have been cautious/sensible/not greedy & not jumped on the cheap money bonanza bandwagon are stuffed by inflation and loss of value of our hard-earned savings.
This is because banking is our biggest industry, must be protected at all costs, and we are nothing without it, sadly.

Some people seem to be missing the point.

Banks can force houses prices up and have done by persuading some people to borrow too much and/or lie about their income. Once these people set a new going rate then other people have to pay the same, so houses are more expensive for everyone.

I do not plan on upsizing again so from a financial point of view I should want house prices to rise so when I downsize in theory I have more "profit".

But the "profit" is entirely false due to credit expansion and means a lower quality of life. As house prices are so high and people have more debt to service, like me they are going to have to work more hours and have less disposable income to spend in the economy.

In simple terms, high house prices and low wages are good for banks, corporations and landowners. Low house prices and high wages are good for the public.

People cheering for any kind of INFLATION are like turkeys cheering for Christmas.

'Banks can force houses prices up and have done by persuading some people to borrow too much and/or lie about their income.'

The borrowers are just as complicit. They sign on the dotted line. They demonstrate financial foolishness in overstretching themsevles.

mortgage brokers have been found to have encouraged/let customers lie about income. Banks lose money if they extend debt that can't be repaid.

I read through this whole thread yesterday and found it really interesting even though my economic knowledge is pretty poor so some of it went over my head.

OP what I dont get is what is credit expansion? Are you saying any profits made on a house are worth less in real terms because of rising everyday costs ? In the same way having money in a savings account "loses" money ?

What I do know is the prices of property in the little pocket of the town where I live have gone from paying £118,000 for a 3 bed semi 16 years ago to 4 months ago paying £465,000 for a not dissimilar house. This increase has nothing to do with banks and everything to do with demand far outstripping supply and the qualities it has as an area to live in.

I would have been happy renting for much longer if there was more security of tenure. But after 3 moves in 3 years due to landlords selling up the positives of home ownership outweighed the negatives. When mortgage repayments (not interest only) are two thirds of the cost of our rent buying seems like a sensible option and one that we are lucky to be able to take.

I feel for those people who perhaps don't have a deposit or can't get a mortgage. Paying out more in rent to pay someone else's mortgage despite not being able to get your own.

Cassandra I don't think anyone has been suggesting that high house prices are a good thing.

The only people who make money out of rising house prices are property investors and downsizers - that's not many people.

What some of us have been disagreeing with you about is the cause of high house prices. It is not down to the evil banks "persuading" people to borrow more. Banks offer people more credit, yes, in the same way that a car company offers a shiny new car. But people choose whether or not to take it.

gettingeasier I think that credit expansion simply means that credit is more readily available. The effect of this is inflation. It means everyone has more spending power and therefore can pay more for things, so prices go up. But it's not "real" spending power - it's not as if wages have gone up. So the danger is that prices go up because of people being able to pay more using credit, other people then have to take out credit in order to be able to afford those prices.

The only solution is for enough people to refuse to get into unaffordable levels of debt in order to buy things (houses or other things). If that happens, then prices will drop back to levels that can be afforded without too much credit.

The solution is for people to refuse to borrow more than they can afford.

Thanks minipie

minipie, agree with everything you have said. In terms of solution, I don't think people are going to refuse to borrow more than they afford as I think we are so much more of a "I need to have it now" society/culture. I think re-regulation is probably the way forward with the FSA forcing more strict lending criteria on lenders. If people can't afford to buy your house then in theory you will have to lower your asking price. At the moment, banks are imposing that lending criteria themselves but everyone (including sellers) knows its temporary which is why house prices haven't tumbled. Whether regulation would make a difference is a moot point because iirc the LDs want tighter lending criteria but the Tories are very aware that a fall in property prices will hit middle England and the baby boomers hardest and given that's the bedrock of support I can't see them rushing to do the sensible thing.

This is an odd thread.

Bankers have no more 'enslaved' us with their high house prices than Apple have enslaved us with their sexy shiney iphones. They provided a service - if you don't like, don't use. Women wanted to work and wanted that reflected in their household income and therefore the amount of money available to the family to borrow. Hardly immoral of the banks. And as for self cert mortgages, if you lied on that you get what's coming to you.

I don't see how 'bankers' can be accused of being less moral than, say, the woman at the make-up counter who was happy to sell me £80 worth of eyeshadow without checking my statements to see if I could afford it... Take some responsibility!

And I really dislike it when people say how much harder everyone has it these days than back when they were a kid. No, actually: roads/car safety; food quality and cost of food in real terms; water and air quality; expansion of information and leisure opportunity; animal welfare; child accident prevention; and on and on.

Well put, Lemon.

I also don't see rent as a rip-off because it's 'paying someone else's mortgage'.

Shelter is an absolute essential, that's what rent is: payment for shelter that I need.

Funny we were talking about this at work today. We rent, have never bought and have been renting the same house we live in now for nearly 4 years. Great area, semi detached Victorian house, fab school and cheap rent cos we have no central heating and it is a bit run down.

I do want to buy at some point, will be years down the line though cos of the massive deposit we need, but one guy at work said why buy at all? And then others were doing the 'rent is dead money' thing.

Thing is we are really happy here, it is a long term thing - so we are lucky in that respect - and we could have bought a few years ago borrowing a ridiculous amount of money and having a HUGE mortage on a tiny,tiny house in an area we weren't that fussed on. I know which I prefer.

mizu, why not stay put, but keep saving. so when your kids grow up and fly the next and you and DH want to retire, you buy a small cottage or flat in cash?

lachesis I think that is what we will do. I used to be really het up about not owning but at the moment i don't mind a bit. We are very settled here and do not wish to move at this present time.

There is a lecture here from an US scholar who shows what has happened as regards women working more. It's based on inflation adjusted US figures over 30 years but the same would apply here.

Basically household incomes have increased but male incomes haven't, the rise is all down to more women starting to work. The money has gone on much higher mortgage payments, a second car (req. as the woman now works to fund the higher mortgage). We spend less on food, clothes etc. so it isn't consumption that's the problem, it's the mortgage.

Start at 6:20 to miss the intro

Ok. So what do you suggest? Should we all stop working?

Dreadful, whoever let women work has a lot to answer for.

It doesn't alter anything though. It is basic supply and demand. Household incomes have gone up because more women work and work at a rate closer to the men's salary (equality laws mean that the pay gap has closed a lot even if it hasn't disappeared) so more families can afford to buy a house where previously they rented - demand goes up. When demand goes up so does the price. I still don't see how the banks can be held solely accountable for this.

Interesting to see that no-one has mentioned supply and demand.

In the south east, where the bulk of the jobs are, there is a massive shortage of property, particularly at a starter level. People need to live in this area in order to work.
Of course prices will keep inflating when there are people wanting/needing to buy in that area, more so in the smarter, prettier, less dingy parts of whichever town. This is not a feature of conspiracy, this is a basic fact of a market-driven culture.

In London in particular we'll probably end up with a property market like Paris where most people rent, and everyone seems fine with it. Or god forbid, like NYC where everyone has to be vetted by the people in their buildings and has to pay huge service charges.

kenobi

see Niecie's post just above yours...

Supply & demand yes. No argument there - plenty of people have mentioned it, but 'normal' market dynamics with the addition of excess cheap irresponsible lending fuels the rise in the market artificially, on top of any S&D effect = massive bubble.
There is no-one refuting the fact that the UK housing market is an asset bubble, fueled and maintained by artificially created 'wealth' and manipulation of lending and lending rates, which have over-amplified the effect of supply & demand and rising household income over the last 12 years to a level that would never be reached under 'natural' market conditions.

Yep, I wrote it and posted without refreshing the page. It happens. And always makes you look stupid, alas...