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Interest rates get brought up every time this topic is discussed and the math remains the same. Even accounting for the difference in interest rates, people are

by Jochim 2y ago

Interest rates get brought up every time this topic is discussed and the math remains the same. Even accounting for the difference in interest rates, people are much worse off today than they were in the 80s.

timthorn 2y ago
Far more repossessions took place in the 80s and 90s. Times were/are different, but it wasn't easy back then either.
gnfargbl 2y ago
I didn't believe your statement, so I looked up some numbers. 1989: - Interest rate: 14.5%. - Average house price: £58k. - Monthly repayment: £650 (90% LTV, 25 year term). - Average pre-tax income: £10k. 2024: - Interest rate: 5.25%. - Average house price: £282k. - Monthly repayment: £1500 (90% LTV, 25 year term). - Average pre-tax income: £35k. So in 1989, an average mortgage was about 80% of an average gross income. In 2024, an average mortgage is about 50% of an average gross income. I specifically chose 1989 because it was a year of high interest rates, but you can repeat the calculation for other years if you wish. I don't think the results will support your assertion.
- Jochim 2y ago
  Nationwide actually publish data about the monthly mortgage payment to take home pay ratios of first time buyers[0]. Compared to Q1 2014, repayments accounted for a lower proportion from when their data begins, in Q1 1983, until Q3 1988. Repayments remained higher until Q4 1990. In 1989 interest rates were at record highs and mortgage interest relief was still a thing. Despite interest rates hovering between 8-12% for the rest of the 1980s, mortgage repayments were consistently a much lower proportion of income. In 2024 there's no interest relief and we're exiting a period of record low rates. The rise to 5.25% already puts us in a worse position than when rates were at 10%, 14.5% would disastrous. [0] https://www.nationwidehousepriceindex.co.uk/charts https://www.nationwidehousepriceindex.co.uk/charts
  - gnfargbl 2y ago
    A very late response, but just to say thanks for this. The full dataset you found is actually available at https://www.nationwidehousepriceindex.co.uk/download/ftb-mtg-payments-by-region https://www.nationwidehousepriceindex.co.uk/download/ftb-mtg.... It is worth looking at the mid-2000s numbers (post-MIRAS, but pre-crash) and comparing them to today's numbers. They're really not so different. No argument on the relative leverage: 10% would be impossible and 15% would probably precipitate a revolution.
- willcipriano 2y ago
  If you got a mortgage at 14.5% you can refinance it when rates get lower, and people did. The 2nd group can't "refinance" all the extra principal they owe.

by Jochim 2y ago

timthorn 2y ago

Far more repossessions took place in the 80s and 90s. Times were/are different, but it wasn't easy back then either.

gnfargbl 2y ago

I didn't believe your statement, so I looked up some numbers. 1989: - Interest rate: 14.5%. - Average house price: £58k. - Monthly repayment: £650 (90% LTV, 25 year term). - Average pre-tax income: £10k. 2024: - Interest rate: 5.25%. - Average house price: £282k. - Monthly repayment: £1500 (90% LTV, 25 year term). - Average pre-tax income: £35k. So in 1989, an average mortgage was about 80% of an average gross income. In 2024, an average mortgage is about 50% of an average gross income. I specifically chose 1989 because it was a year of high interest rates, but you can repeat the calculation for other years if you wish. I don't think the results will support your assertion.

Jochim 2y ago
Nationwide actually publish data about the monthly mortgage payment to take home pay ratios of first time buyers[0]. Compared to Q1 2014, repayments accounted for a lower proportion from when their data begins, in Q1 1983, until Q3 1988. Repayments remained higher until Q4 1990. In 1989 interest rates were at record highs and mortgage interest relief was still a thing. Despite interest rates hovering between 8-12% for the rest of the 1980s, mortgage repayments were consistently a much lower proportion of income. In 2024 there's no interest relief and we're exiting a period of record low rates. The rise to 5.25% already puts us in a worse position than when rates were at 10%, 14.5% would disastrous. [0] https://www.nationwidehousepriceindex.co.uk/charts https://www.nationwidehousepriceindex.co.uk/charts
- gnfargbl 2y ago
  A very late response, but just to say thanks for this. The full dataset you found is actually available at https://www.nationwidehousepriceindex.co.uk/download/ftb-mtg-payments-by-region https://www.nationwidehousepriceindex.co.uk/download/ftb-mtg.... It is worth looking at the mid-2000s numbers (post-MIRAS, but pre-crash) and comparing them to today's numbers. They're really not so different. No argument on the relative leverage: 10% would be impossible and 15% would probably precipitate a revolution.
willcipriano 2y ago
If you got a mortgage at 14.5% you can refinance it when rates get lower, and people did. The 2nd group can't "refinance" all the extra principal they owe.