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Post by bracknellboy on May 11, 2018 19:47:36 GMT
Many Baby Boomers as parents & grandparents already provide financial support to their children & grand children. The idea that millennials are entitled to a £10k handout is preposterous. I watched a TV quiz the other night in which a 23 year old had a chance to win £6k. When asked by Bradley Walsh, the quizmaster, what he'd spend it on he replied, a holiday in Bali or maybe a deposit for a house. Therein lies the problem! At that age I was working every hour to raise a deposit for a house. I was prepared to wait for the holidays, Iphones & other luxuries until I was on the property ladder. When I got my first mortgage in 1976 I was paying 11% pa interest which was the prevailing rate at the time. The big difference is that in 1976 house prices were 3 times average earnings. Currently they are nearly 8 times earnings, much more in the South/London. So I would say therein lies the problem actually - even by foregoing the holiday the house isn't affordable, however many hours are worked, so might as well have the holiday. I think the boomers' sense of entitlement (to unearned housing wealth) is at least as great as the millennials. see: www.ons.gov.uk/peoplepopulationandcommunity/housing/bulletins/housingaffordabilityinenglandandwales/2017The capital cost is an irrelevance (mostly, not entirely). Or rather its just one "input" to something of far more relevance. Its affordability that is the key issue. And that is not solely, or even mostly, about price:earnings ratio. Which is not to say that price is not an issue, but don't conflate it with affordability. At least 2 things come into play: borrowing rates (which are VASTLY different) and life expectancy (which means that frankly longer mortgage periods ought to be in play). so "it aint that simple".
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Post by bracknellboy on May 11, 2018 19:56:10 GMT
The rights and wrongs of passing lump sums up or down generations is a really interesting topic, but frankly I think it completely misses the key point in this context (which was floated as a leg up for housing).
Cost of housing in UK is first, second, third and fourth most a straight forward supply-demand issue. I continue to be utterly flabbergasted by the outright stupidity of people coming to the conclusion that the way to "solve" the issue of the cost of housing - whether generally or one particular sector such as first time buyers - is to arm the demand side of that equation with additional cash to spend. It just beggars belief.
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Post by samford71 on May 11, 2018 20:37:56 GMT
In financial terms, the baby boomer generation (say 1945-1965) was anomalous because they benefitted from very high real yields on safe assets (cash and gilts). From 1850 to current, the real yield on safe assets was around 1.5%. From 1980 to current (in 1980 boomers were 15-35 and entering their earning years), this was a massive 4.7%. By comparison the prior 30 year period (1950 to 1980) it was -1.3% and the current real yield on safe assets is also negative (say -1.2% if you average cash and long-dated gilts). Effectively, the baby boomers started with a high real yield on safe assets; they didn't need to take risk to make a decent return on capital.
Morover, as the real yield on safe assets fell toward the current negative levels, this caused the prices of "bond proxy" risky assets such as property to rise. Those risky assets tend to discounted using the long-dated real yields of safe assets, so as the yields fall, prices rise in a convex manner. In addition, yield curve term premia tends to be correlated with the square root of inflation volatility. As central banks globally introduced inflation targetting over the 1980s and 90s this helped crush expectations of inflation volatility, flattening yield curves and further supporting higher asset prices on bond proxies. Essentially, the boomer generation were "lucky" that the 1970s happened. I doubt it felt very lucky at the time and it did some serious damage to wealth of the prior generation. However, if you could weather that scenario of high inflation and poor economics (the US had three recessions in the 70s), then by the 1980s you were left with some high real yields and cheap asset prices.
The problem here is that millenials are facing expensive asset prices. Throwing £10k around, schemes like Help to Buy (or Help to Sell as it should be called) or even adding some supply isn't go to change that situation (supply-demand is so overated as a predictor of asset prices). What you need to do is to get those discount factors down fast and that means higher inflation, higher real yields, and a big fat lump of risk premia. If the millenials have any sense, their best plan would be to engineer a similar situation to the 1970s: high inflation, poor economic policies, some strife in the labour markets and perhaps a bit of civil disorder. Know anybody who might be able to help them? That's the problem with snowflakes. The might seem fragile but, beware, an accumulation of them still becomes an avalanche.
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Mike
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Post by Mike on May 11, 2018 22:20:34 GMT
Why do you people feel they need to own property? In London without a several-decade long view I'm happy to rent.
It annoys me that others my age feel they 'ought' to be able to own their own place.
There is the issue. There is enough houses (doesn't everyone live somewhere?) but people feel they have a right to own for some reason I have yet to hear a proper answer for.
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starfished
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Post by starfished on May 12, 2018 6:26:02 GMT
Why do you people feel they need to own property? In London without a several-decade long view I'm happy to rent. Because (some) Landlords do things like up the rent 10% one year after you move in to an unfurnished flat because they think they have you trapped. That certainly accelerated my decision to buy. I was fortunate.
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jlend
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Post by jlend on May 12, 2018 6:27:43 GMT
The big difference is that in 1976 house prices were 3 times average earnings. Currently they are nearly 8 times earnings, much more in the South/London. So I would say therein lies the problem actually - even by foregoing the holiday the house isn't affordable, however many hours are worked, so might as well have the holiday. I think the boomers' sense of entitlement (to unearned housing wealth) is at least as great as the millennials. see: www.ons.gov.uk/peoplepopulationandcommunity/housing/bulletins/housingaffordabilityinenglandandwales/2017The capital cost is an irrelevance (mostly, not entirely). Or rather its just one "input" to something of far more relevance. Its affordability that is the key issue. And that is not solely, or even mostly, about price:earnings ratio. Which is not to say that price is not an issue, but don't conflate it with affordability. At least 2 things come into play: borrowing rates (which are VASTLY different) and life expectancy (which means that frankly longer mortgage periods ought to be in play). so "it aint that simple". The latest ONS figures are predicting an overall fall in average life expectancy, albeit with disparties up and down depending on where you live.
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Post by Deleted on May 12, 2018 8:50:03 GMT
What amazes me is how many people want to earn a degree and how few jobs really require you to have one, but instead insist on it.
I'm very positive about education but notice how few thirds there are now adays.
So we have a massive increase in students, amazing pressure to make them pay for them, degree inflation and still they come.....
On the other hand we have the collapse of a traditional pension scheme so now everyone does their own SIPP so logically more and more people want to own a house as a second pension scheme. Hence house price inflation.
Blaming the government for not providing low cost housing is just crazy. There are plenty of houses, this claim that we have not been building 200k houses a year every year for the last 10 years would mean there are 4 million people sleeping on the streets. There are not.
Blame the government for pushing students into university degrees, blame the universities for degree inflation and blame the government for allowing defined contribution inflation.
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SteveT
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Post by SteveT on May 12, 2018 9:05:08 GMT
What amazes me is how many people want to earn a degree and how few jobs really require you to have one, but instead insist on it. I'm very positive about education but notice how few thirds there are now adays. So we have a massive increase in students, amazing pressure to make them pay for them, degree inflation and still they come..... On the other hand we have the collapse of a traditional pension scheme so now everyone does their own SIPP so logically more and more people want to own a house as a second pension scheme. Hence house price inflation. Blaming the government for not providing low cost housing is just crazy. There are plenty of houses, this claim that we have not been building 200k houses a year every year for the last 10 years would mean there are 4 million people sleeping on the streets. There are not. Blame the government for pushing students into university degrees, blame the universities for degree inflation and blame the government for allowing defined contribution inflation. Actually there's very little pressure on students to "make them pay" for their degrees (I speak as the father of 2 current University-age children). Despite the endless politicised bleating from the NUS and others in the media about the "heavy cost" to students of going to University, the vast majority of students themselves are smart enough to realise that a Student Loan is a no-lose bet. They get to spend 3 or 4 years having fun at the taxpayers' expense and only have to start paying anything back if / when they are in a well-paid job. If they stop work, the payments stop too, and whatever's left unpaid after 30 years is simply written off. That's why, with no cap to the number of students entitled to a Student Loan, ever more want to go to University and the cost to the taxpayer continues to spiral. When did you last hear a story about a graduate in financial hardship over their student loan repayments? The monthly payment for someone on £30k per year is just £37.50, less than they probably spend on takeaway coffees. For someone on £50k per year, it's still only £187.50 per month, maybe the cost of a couple of evenings out.
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cb25
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Post by cb25 on May 12, 2018 9:14:48 GMT
There are plenty of houses, this claim that we have not been building 200k houses a year every year for the last 10 years would mean there are 4 million people sleeping on the streets. There are not. Aside from the actual homeless, people will always squeeze into the available housing even if it means sharing when in previous decades they would have been homeowners (e.g. young adults still living at home). Another factor that comes into play when new housing doesn't meet demand is the conversion of large houses into multiple occupancy (small) flats - same number of houses as before, but increased density.
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snowmobile
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Post by snowmobile on May 12, 2018 9:59:37 GMT
1983 I paid interest of 13% on my 98% mortgage or £4,000pa (penal because of high LTV). Upgraded for inflation that would be about £12,000pa now. That would cover a £400,000 mortgage today. I realise the deposit would be an issue but hey, I’d have killed for a 3% mortgage! Me too! When I took out my first mortgage in 1990 rates were around 15%. A huge proportion of my income was needed just to pay the mortgage interest, not to mention the endowment  premiums on top. Some quick calculations to illustrate. Google say average earnings in 1990 were £13,760. Assuming a single earner and a maximum lending multiple of 3 times salary, that would equate to a mortgage of roughly £41k. Even ignoring inflation the interest payments on that would be sufficient to cover a mortgage of £205k at current 3% rates. That should be sufficient to buy a starter home in most areas, obviously excluding London. The issue is that banks are now too risk averse to significantly increase lending as multiples of income. They would be facing another banking crisis and viewed as irresponsible if rates were to rise in the future.
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cb25
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Post by cb25 on May 12, 2018 13:17:04 GMT
1983 I paid interest of 13% on my 98% mortgage or £4,000pa (penal because of high LTV). Upgraded for inflation that would be about £12,000pa now. That would cover a £400,000 mortgage today. I realise the deposit would be an issue but hey, I’d have killed for a 3% mortgage! Me too! When I took out my first mortgage in 1990 rates were around 15%. A huge proportion of my income was needed just to pay the mortgage interest, not to mention the endowment premiums on top. Some quick calculations to illustrate. Google say average earnings in 1990 were £13,760. Assuming a single earner and a maximum lending multiple of 3 times salary, that would equate to a mortgage of roughly £41k. Even ignoring inflation the interest payments on that would be sufficient to cover a mortgage of £205k at current 3% rates. That should be sufficient to buy a starter home in most areas, obviously excluding London. The issue is that banks are now too risk averse to significantly increase lending as multiples of income. They would be facing another banking crisis and viewed as irresponsible if rates were to rise in the future. I did a test -chose a mortgage calculator (HSBC's, first one that showed up on a search) -chose the South West (wanted to stay away from London/South East) -£27,500 income (roughly average salary ?) Result: can borrow £130K. Problem is that Land Registry says average price (Feb 2018) of a terraced house in the South West is £208K.
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markr
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Post by markr on May 12, 2018 13:24:06 GMT
I might need a lawyer or a doctor or a civil engineer at some time. Trouble is, when you do need one, you might find they've all given it up for music.
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snowmobile
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Post by snowmobile on May 12, 2018 13:46:44 GMT
Me too! When I took out my first mortgage in 1990 rates were around 15%. A huge proportion of my income was needed just to pay the mortgage interest, not to mention the endowment premiums on top. Some quick calculations to illustrate. Google say average earnings in 1990 were £13,760. Assuming a single earner and a maximum lending multiple of 3 times salary, that would equate to a mortgage of roughly £41k. Even ignoring inflation the interest payments on that would be sufficient to cover a mortgage of £205k at current 3% rates. That should be sufficient to buy a starter home in most areas, obviously excluding London. The issue is that banks are now too risk averse to significantly increase lending as multiples of income. They would be facing another banking crisis and viewed as irresponsible if rates were to rise in the future. I did a test -chose a mortgage calculator (HSBC's, first one that showed up on a search) -chose the South West (wanted to stay away from London/South East) -£27,500 income (roughly average salary ?) Result: can borrow £130K. Problem is that Land Registry says average price (Feb 2018) of a terraced house in the South West is £208K. Yes that illustrates well the point I was trying to make. It is not that young people can't afford the repayments to buy a house. Repayments are much more affordable than they were in the 1980s and 90s. It's that they can't borrow enough to buy a house in the first place. A person on average income in 1990 (£13,760), borrowing 3 times their salary at 15% would be paying an eye watering £6k a year in interest alone. That's 45% of their gross salary. People survived, I know I did, but huge sacrifices had to be made to afford the repayments. Today average earnings (£27,500) are roughly double that of 1990. In theory if they could borrow £200k at 3% it would still cost £6k a year in interest. That's only 22% of gross salary and therefore significantly more affordable. However, as you've pointed out, the bank will only lend £130k. I'm not sure what the answer is. £10k of free money isn't really going to do much to address the £70k shortfall.
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jlend
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Post by jlend on May 12, 2018 21:57:34 GMT
I did a test -chose a mortgage calculator (HSBC's, first one that showed up on a search) -chose the South West (wanted to stay away from London/South East) -£27,500 income (roughly average salary ?) Result: can borrow £130K. Problem is that Land Registry says average price (Feb 2018) of a terraced house in the South West is £208K. Yes that illustrates well the point I was trying to make. It is not that young people can't afford the repayments to buy a house. Repayments are much more affordable than they were in the 1980s and 90s. It's that they can't borrow enough to buy a house in the first place. A person on average income in 1990 (£13,760), borrowing 3 times their salary at 15% would be paying an eye watering £6k a year in interest alone. That's 45% of their gross salary. People survived, I know I did, but huge sacrifices had to be made to afford the repayments. Today average earnings (£27,500) are roughly double that of 1990. In theory if they could borrow £200k at 3% it would still cost £6k a year in interest. That's only 22% of gross salary and therefore significantly more affordable. However, as you've pointed out, the bank will only lend £130k. I'm not sure what the answer is. £10k of free money isn't really going to do much to address the £70k shortfall. Repossessions were the highest ever in 1991 due to the problems then. Over 75,000 properties were repossessed, and many other people were forced sellers including some of my family and friends.
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snowmobile
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Post by snowmobile on May 13, 2018 8:32:24 GMT
Yes that illustrates well the point I was trying to make. It is not that young people can't afford the repayments to buy a house. Repayments are much more affordable than they were in the 1980s and 90s. It's that they can't borrow enough to buy a house in the first place. A person on average income in 1990 (£13,760), borrowing 3 times their salary at 15% would be paying an eye watering £6k a year in interest alone. That's 45% of their gross salary. People survived, I know I did, but huge sacrifices had to be made to afford the repayments. Today average earnings (£27,500) are roughly double that of 1990. In theory if they could borrow £200k at 3% it would still cost £6k a year in interest. That's only 22% of gross salary and therefore significantly more affordable. However, as you've pointed out, the bank will only lend £130k. I'm not sure what the answer is. £10k of free money isn't really going to do much to address the £70k shortfall. Repossessions were the highest ever in 1991 due to the problems then. Over 75,000 properties were repossessed, and many other people were forced sellers including some of my family and friends. That's true. Not everyone got through that difficult time. It must have been particularly difficult for those who had taken out their mortgages when rates were lower. Looking back I'm not quite sure how I managed. It wasn't sustainable that's for sure, but luckily rates started to fall within the next few years. Any Millennials who think the previous generation had it easier should try finding out what % of income people were paying when rates were 15%.
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