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Housing market

My kids want to live in London (in the UK, Brexit fouled up various plans) where they have always lived so it’s a bit daunting - just how much will they have to earn/save to even approach the housing ladder?
 
Yes we nearly bought a flat in 84 in london at 18k but didnt .when we got back from college in 87 it was 54k and we never bought .had to evacuate to a cheaper place without ever buying
 
My mum didn’t buy a house in Greenwich for a thousand pounds when I was in a pram. (She told me this, I wasn’t scanning estate agent boards. She did let go of the pram at the top of the park once so I traveled to central Greenwich very rapidly and have more or less stayed there since).
 
According to various papers this morning:

"Record demand for 35-year mortgages as rates keep rising.

Rising mortgage rates are forcing more borrowers to take out lengthy loans.

A record share of first-time buyers are taking out mortgages with terms of 35 years or more, the Telegraph reported yesterday, rather than the ‘typical’ 25-year term.

They cited new UK Finance data showing that almost a fifth of loans taken out by first-time buyers in March were for terms of 35 years or longer.

Such longer-term loans look more attractive as interest rates rise, as the monthly payment on the debt will be lower. However, it could be creating a ‘debt timebomb’ in future years, as lender could still be stuck with a mortgage late in their careers, or even into retirement."

Maybe 50-year mortgages will be the next big thing.
 
IMHO, you’re better off taking out a 35 year mortgage at 30 than not. The earlier the better really, over the long term, you’ll be ahead. As long as you don’t default, you’ll own the roof over your head prior to retirement. What would help are very long term fixes to avoid short term rate movements and provide payment stability and predictability.
 
When I was looking to buy my first home the advice was "borrow as much as you can over as long as you can as inflation will over time eat away that loan". It worked for me and that was 50 years ago.

A 35 year loan doesn't have to stay and as you move to other properties you'll find that you may be able to afford to pay over a shorter period especially if climbing the promotion ladder.

DV
 
Indeed, offset mortgages are your friend! Except what tends to happen with career progression is bigger houses and more debt!
 
Ponty said:
IMHO, you’re better off taking out a 35 year mortgage at 30 than not. The earlier the better really, over the long term, you’ll be ahead. As long as you don’t default, you’ll own the roof over your head prior to retirement. What would help are very long term fixes to avoid short term rate movements and provide payment stability and predictability.
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I think longer loans are the future, at least to get started. While interest rates remain low it's surprising that only about half of the payments are interest even at the start. I did a back of envelope calculation based on the model above (£100k/4%/25 years/£600pm) and at the end of Year 1 you have paid back £3k of the loan amount and £4.2k interest. I was surprised that as much as £3k had been killed off in Year 1, I know that you have to pay £4k average pa over 25 years but I thought that the interest would have been much more (say 80-90%) of the figure in the first year because by the end the interest is effectively zero and almost all the 7.2k is eating the capital. All this assumes that the interest is applied monthly and in a consistent fashion of course. I might set up a spreadsheet to do the full 300 month calculation and see if my calculations and assumptions stack up.
 
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stevec67 said:
I think longer loans are the future, at least to get started. While interest rates remain low it's surprising that only about half of the payments are interest even at the start. I did a back of envelope calculation based on the model above (£100k/4%/25 years/£600pm) and at the end of Year 1 you have paid back £3k of the loan amount and £4.2k interest. I was surprised that as much as £3k had been killed off in Year 1, I know that you have to pay £4k average pa over 25 years but I thought that the interest would have been much more (say 80-90%) of the figure in the first year because by the end the interest is effectively zero and almost all the 7.2k is eating the capital. All this assumes that the interest is applied monthly and in a consistent fashion of course. I might set up a spreadsheet to do the full 60 month calculation and see if my calculations and assumptions stack up.
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Yep, most are daily interest calculations now so the quicker you pay it off and more you overpay the better. Broken record I know but cannot emphasise enough the benefits of offset mortgages. The problem over the last 10+ years is many people have delighted in paying sod all each month with ultra low rates and thinking why focus on reducing the mortgage when borrowing is so cheap, let’s spend the difference on cars and holidays instead. Well, because rates could only go one way, that’s why. Of course, money is still historically pretty cheap but capital values have adjusted upward to ZIRP, so will take a little time to reach a new equilibrium, depending on the level and speed of motivated / forced sales.
 
Ponty said:
Yep, most are daily interest calculations now so the quicker you pay it off and more you overpay the better. Broken record I know but cannot emphasise enough the benefits of offset mortgages. The problem over the last 10+ years is many people have delighted in paying sod all each month with ultra low rates and thinking why focus on reducing the mortgage when borrowing is so cheap, let’s spend the difference on cars and holidays instead. Well, because rates could only go one way, that’s why. Of course, money is still historically pretty cheap but capital values have adjusted upward to ZIRP, so will take a little time to reach a new equilibrium, depending on the level and speed of motivated / forced sales.
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Yeah, I never understood that mentality of..."Money's cheap so lets piss it away".
I personally took it for what it was....a once in a century opportunity to knuckle down, go without, pay off my own mortgage and grab some investment properties and pay them off asap too.
 
stevec67 said:
I think longer loans are the future, at least to get started. While interest rates remain low it's surprising that only about half of the payments are interest even at the start. I did a back of envelope calculation based on the model above (£100k/4%/25 years/£600pm) and at the end of Year 1 you have paid back £3k of the loan amount and £4.2k interest. I was surprised that as much as £3k had been killed off in Year 1, I know that you have to pay £4k average pa over 25 years but I thought that the interest would have been much more (say 80-90%) of the figure in the first year because by the end the interest is effectively zero and almost all the 7.2k is eating the capital. All this assumes that the interest is applied monthly and in a consistent fashion of course. I might set up a spreadsheet to do the full 300 month calculation and see if my calculations and assumptions stack up.
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Spreadsheet constructed and populated, interesting results.
With the example upthread (£100k, 25 years, 4%, £600pm) this breaks down to a monthly interest rate of 0.33%. This raised to the power 12 is 4.03% pa so close enough. Assuming the capital amount is reduced every month (someone upthread said that the lenders don't necessarily do this, naughty) then your first month pays £330 interest and £270 off the capital. Lather, rinse, repeat. Next month there is £329.11 interest so you pay off £270.89. Cycle this around for 25 years and you get to 20 years and 4 months before the loan is paid off. So clearly my assumptions are not all valid, I suspect that the capital amount on which you pay interest is not adjusted every month but only every year and this will account for another 5 years.
However it's interesting that you do attack the capital amount pretty quickly. After the first year £3k is gone out of "only" £7.2k paid, after 5 years £17.5k, after 10 £40k, after 15 £66k and £98k paid off at 20 years. The amount paid off every year obviously accelerates but not as fast as I would have thought.
 
I must admit, I don't understand the recurring reference to a £100K mortgage, unless it's just an easy to scale up number. Around here, double that wouldn't buy you a flat in a remotely desirable area and I, by no means, live in a nice, or particularly expensive town.
 
TheMJ said:
I must admit, I don't understand the recurring reference to a £100K mortgage, unless it's just an easy to scale up number. Around here, double that wouldn't buy you a flat in a remotely desirable area and I, by no means, live in a nice, or particularly expensive town.
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Exactly as you suggest, it's simply an example that you can scale up. Actually I've just checked, it was based on £113k being a notional amount that a postman earning £25k could borrow. That would cost £600 a month, and it goes in with the fact that my spreadsheet workings had it paid off inside 21 years.
As for the relevance of £100k, it's enough be get started here in Leeds, or certainly next door in Bradford. More than enough in other parts of the North, not enough elsewhere.
 
stevec67 said:
Spreadsheet constructed and populated, interesting results.
With the example upthread (£100k, 25 years, 4%, £600pm) this breaks down to a monthly interest rate of 0.33%. This raised to the power 12 is 4.03% pa so close enough. Assuming the capital amount is reduced every month (someone upthread said that the lenders don't necessarily do this, naughty) then your first month pays £330 interest and £270 off the capital. Lather, rinse, repeat. Next month there is £329.11 interest so you pay off £270.89. Cycle this around for 25 years and you get to 20 years and 4 months before the loan is paid off. So clearly my assumptions are not all valid, I suspect that the capital amount on which you pay interest is not adjusted every month but only every year and this will account for another 5 years.
However it's interesting that you do attack the capital amount pretty quickly. After the first year £3k is gone out of "only" £7.2k paid, after 5 years £17.5k, after 10 £40k, after 15 £66k and £98k paid off at 20 years. The amount paid off every year obviously accelerates but not as fast as I would have thought.
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Edit - the example above was for £113k, 25 years, 4%, £600 pm. With the initial amount revised my spreadsheet has it paid off in 24 years 5 months, so the difference will be cumulative rounding errors and things like the fact that the real online calculator said £594 a month which I wrote as £600 for simplicity.
Further edit, if I change the monthly payment amount to £594 and run the calculations, it takes precisely 25 years to pay it off and after the 300th payment you have overpaid a whole £18. That'll do. £18 out in 25 years? Close enough.
 
Remember some older mortgages with certain BS only calculate overpayments once annually.
In which case you want to stick your overpayments in a high paying interest account and transferring the lump sum to overpay the mortgage just before the calculation date
 
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andyoz said:
Yeah, I never understood that mentality of..."Money's cheap so lets piss it away".
I personally took it for what it was....a once in a century opportunity to knuckle down, go without, pay off my own mortgage and grab some investment properties and pay them off asap too.
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Indeed, a once in a lifetime window to get rid of debt whilst it was super cheap. I suppose all the GFC and covid QE / ‘free’ money and can kicking made folk think it would never end. Ironically it’s these very policies which has caused the problems we’re now seeing. Listening to LBC earlier today and it was caller after caller sleepwalking into trouble. How the market will fare will be interesting to watch. I’m not buying or selling, the transaction costs and taxes make it daft to change tack for the long run, my sails are set. The more landlords who flee the market the better, the demand won’t be going away.
 
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