Reply to: Oh how could we be so stupid?

[DealorNoDeal]

Oh, and BTW, it's not just mortgage borrowers who would suffer if interest rates went.

Governments have borrowed quite a bit too.

[DealorNoDeal]

But if the only thing making houses affordable is interest rates being so low, then this will surely come to an end.

In the old days, if inflation ever started to take off, the normal response of the BoE would be to hike rates fairly rapidly. But I just don't see how they could do that now without crippling home owners and sending the economy into a tailspin.

The normal lever, of raising interest rates to curb inflation, isn't really available to them now.

[mallisarealperson]

The starting salary of a graduate is about 30K these days, they'll be up to 35-40K by the time they're 30 and with interest rates at 2% rather than 10% easily affordable. Sure it isn't three times earnings but the total price of a home includes interest. If interest rates go up it's because inflation goes up, the salary will go up accordingly, the house will still be affordable.

Err not sure if inflation and house prices along with wages are in any way related these days.

My last perm role, manager did not believe in inflation payrises??

I would say to him, so someone working here since the 1980's should still be on the same wage. Got met with a funny look.

But if the only thing making houses affordable is interest rates being so low, then this will surely come to an end.

[ladymuck]

Do you work for the Bank of England? Because that sounds like central banker's wishful thinking to me.

Oh! You said banker...

[DealorNoDeal]

The starting salary of a graduate is about 30K these days, they'll be up to 35-40K by the time they're 30 and with interest rates at 2% rather than 10% easily affordable. Sure it isn't three times earnings but the total price of a home includes interest. If interest rates go up it's because inflation goes up, the salary will go up accordingly, the house will still be affordable.

Do you work for the Bank of England? Because that sounds like central banker's wishful thinking to me.

[BlasterBates]

I can draw one conclusion though. Interest rates can never go up to 5% again, otherwise huge swathes of the population will be utterly screwed.

I don't know what sort of income multiple a graduate would be borrowing to buy a 160k house but it must be way more than the old 3x.

The starting salary of a graduate is about 30K these days, they'll be up to 35-40K by the time they're 30 and with interest rates at 2% rather than 10% easily affordable. Sure it isn't three times earnings but the total price of a home includes interest. If interest rates go up it's because inflation goes up, the salary will go up accordingly, the house will still be affordable.

[DealorNoDeal]

You can't really draw general conclusions from one area that has become desirable, that happens quite a bit in the South. The house I used to live in is worth about 160K, and is just as affordable to a graduate as it was when I bought it.

I can draw one conclusion though. Interest rates can never go up to 5% again, otherwise huge swathes of the population will be utterly screwed.

I don't know what sort of income multiple a graduate would be borrowing to buy a 160k house but it must be way more than the old 3x.

[BlasterBates]

25 years ago we bought a 4 bed end terrace in an ex council estate (it was mixed ownership) for £65K I was earning £19K+ car then. The same houses are now £500k the area hasn't got much better.

You can't really draw general conclusions from one area that has become desirable, that happens quite a bit in the South. The house I used to live in is worth about 160K, and is just as affordable to a graduate as it was when I bought it.

[LondonManc]

Part of the problem as well is urealistic expectations of first time buyers..... when I bought my first place 20 years ago it was a grot box flat that needed ripping out. It was cheap because of that. Slept on a mattress on the floor for a few months and had little furniture. Turned it into a nice place and then sold it and moved to a better one.

Now, a lot of first time buyers want a semi (would settle for a nice terrace at worst) with a garden and parking ready to move in.

I suspect that part of this, and I say this without casting any moral judgement, 20 years ago more couples sorted out the housing before the kids. Now the kids seem to come before the housing which makes it more unaffordable and them less willing to compromise.

Agree.

Our first house was a standard 2up/2down terrace. LM Jr arrived so we had to upgrade because we already had LM Jrette.

Now in a semi-detached in a leafy suburb and so many kids seem to expect to be this sort of house to be their first.

[vetran]

The other one you see which people never used to - we have to have a room for each of our kids...... now II was an only so I never shared but my cousins did......... one family had three in a room. Not ideal but if it means you can own rather than rent.....

plenty of families with 3 kids renting 1 or 2 bed flats round here.

The cost of a basic family house is 10-20 times average wage compared to 3 times 25 years ago.

[mookiemoo]

The other one you see which people never used to - we have to have a room for each of our kids...... now II was an only so I never shared but my cousins did......... one family had three in a room. Not ideal but if it means you can own rather than rent.....

[vetran]

Part of the problem as well is urealistic expectations of first time buyers..... when I bought my first place 20 years ago it was a grot box flat that needed ripping out. It was cheap because of that. Slept on a mattress on the floor for a few months and had little furniture. Turned it into a nice place and then sold it and moved to a better one.

Now, a lot of first time buyers want a semi (would settle for a nice terrace at worst) with a garden and parking ready to move in.

I suspect that part of this, and I say this without casting any moral judgement, 20 years ago more couples sorted out the housing before the kids. Now the kids seem to come before the housing which makes it more unaffordable and them less willing to compromise.

25 years ago we bought a 4 bed end terrace in an ex council estate (it was mixed ownership) for £65K I was earning £19K+ car then. The same houses are now £500k the area hasn't got much better.

[mookiemoo]

Part of the problem as well is urealistic expectations of first time buyers..... when I bought my first place 20 years ago it was a grot box flat that needed ripping out. It was cheap because of that. Slept on a mattress on the floor for a few months and had little furniture. Turned it into a nice place and then sold it and moved to a better one.

Now, a lot of first time buyers want a semi (would settle for a nice terrace at worst) with a garden and parking ready to move in.

I suspect that part of this, and I say this without casting any moral judgement, 20 years ago more couples sorted out the housing before the kids. Now the kids seem to come before the housing which makes it more unaffordable and them less willing to compromise.

[vetran]

Ordinary houses don't have enough profit.It's got to be executive houses.

It seems to be small bland houses and flats.

https://theconversation.com/barratt-...-builder-20117

The way land is bought and sold in the UK means standardised houses (that could be built anywhere) have to be fundamental to the business model of volume housebuilders such as Barratt or its rival Taylor Wimpey. Money is made in land rather than in housing itself. Better quality, bigger homes and lower density developments will only come about through changes to the land market.

[NotAllThere]

or build more houses and have fewer people wanting them?

Ordinary houses don't have enough profit.It's got to be executive houses.