Bank of England

Rob, it looks like you are coming up to a tough time. I wish you well.

 

The obsession with house prices relative to income is slightly disingenuous and misleading. If in the early stages of a 25 year mortgage you find yourself paying between 10- and 15% interest the lower capital cost is less relevant than the total monthly outgoing mortgage payment being inflated by the high interest.

This in turn means the interest over capital annual reduction makes the overall cost over 25 years high in proportion to the purchase price. The perceived increase in value (people saying "I bought my house for £15K and its now worth £100k") is all well and good but largely irrelevant . To move unless downsizing you will have to pay the same inflated price for anoter property so nothing gained. For many people the mortgage as a percentage of take home pay was very high in the 70s even if house prices were lower relative to take home pay
A 150k house at 12% average for 25 years will cost £473951 in total (£323951 interest) £1580 pm
A 150k house at 2.5% average for 25 years will cost £201877 in total (£51877 interest) £672.93pm
So yes! house prices are high now but people underestimate the impact that interest rates have on the actual monthly spend then and now

 

I think the key points are that rising prices makes it harder for anyone to cobble together a deposit and get on the ladder, and that despite the low rates mortgage payments as a percentage of take home pay have been very high over the past few years, even with interest rates at basically zero.

 

I agree, given what you say re the mortgage payments as a percentage of take home pay, AND the only alternative is rental costs swallowing money that would otherwise go to saving for a deposit, it is now harder.

My point was the argument from some that it is far harder now than it was back in the 70's due solely to high house prices is not accurate.

It is true, that it is far harder for first time buyers but there are many other factors that come into play that did not exist back in the day......
paying back student loans, more 'must have' consumer goods i.e. internet access, tablets, mobile phones (albeit in this day and age it is almost impossible to get by without one or more of those), public transport costs with buses, for example no longer being subsidised and many routes slashed making a car essential for many.
In the 70's many young people lived with parents and were able to save for a deposit on a house. It is true to say, many young people now benefit from parents who are able to help their kids save towards a deposit but equally there are many who struggle to make ends meet on a weekly basis never mind having enough to put towards a house deposit.
The 'killer' though is that to maintain the acceptable standard of living now often requires both parents to have an income with the added complication of extortionate childcare costs in the early years. I was born in 1954 and my dad who had demobbed after the war , spent a few years as a GPO telephone engineer and then, just before I was born, got a job as a civil service clerk. The interesting thing is that he was able to get a deposit on a house already with one daughter in tow on a single wage. They saved for a fridge and TV was rented but we had a house. We did not have a car until much later when we moved to Blackpool when I was 7 when he got promotion and a transfer from London area to the North. My mother was always a 'housewife' and raised a family while my dad was the sole earner.
The divide between 'have' and 'have nots' now extends beyond the super rich and the rest of us. It now also means people who have owned their own houses and have reasonable well paid jobs and savings vs people in rented houses on low pay and, even when working are often on Universal credit. The former are able to give their kids a 'leg up' the latter can't.

In the final analysis, the modern World is far more stressful, complex, imbalanced and demanding for young people compared to the more simple, less materialistic 70's

 

Their mandate is handed down by the government, namely to maintain inflation at around 2%. Given it is currently at 10.7% it's difficult to see how the Bank could not put up interest rates to try and counteract it. It's the government's job to either mitigate any hardship caused by higher interest rates (good luck with this administration) or alternatively to vary the mandate.

 

People still do those things. ‘Renting’ a tv is just the same as people buying one on finance. It’s still paying over the odds for something on the never never.

 

It's awful what is happening and the ultimate consequences will be catastrophic. I hugely feel for young people in particular and those who have just got on the housing ladder.

I'm not sure what you think the BoE is supposed to do though? Inflation is running rampant and this will either be significantly exacerbated by public sector pay rises in line with this - as deserved and warranted as they are - or alternatively if the Government hold a firm line then people will continue to have their standards of living trampled on - inflation on basic foodstuffs is well over 20%. I honestly don't know how folk on the minimum wage are surviving as it is.

It's a rock and a hard place unfortunately. But I don't know what people expect - you'd have to be a special kind of stupid not to have seen this catastrophe coming a mile off between the disasters of Brexit and lockdown. Chickens coming home to roost big time, especially for those who are worst off.

 

But inflation hasn't been driven by an increase in demand. It's been caused by a shortage of supply. So trying to reduce demand is basically putting people into poverty, because you're not reducing demand, you're reducing affordability.

Increasing interest rates isn't going to increase supply, whether that be energy or goods we previously brought in from Europe.

 

Sorry JD but it isn't ,you could rent used TV's very cheaply.
It might not end up with you owning something but as I said it was all about what wee could afford back then, until we progressed

 

Inflation absolutely needs to be brought under control, but all increasing interest rates does is push the poor into further poverty and give the rich an extra bonus on their savings.

The inflation we are experiencing is supply-led, not demand-led. Raising interest rates stifles demand, which in this case only deepens a recession and doesn’t effectively tackle the problem it’s trying to solve.

I don’t profess to have the answers, but raising interest rates and hammering the poor certainly isn't it.

 

Getting shut of the tories would be a start. Most, if not all our issues can be traced back to a tory policy or idealogy. Whether it be privatisation, brexit, or just the desire to get more money to those that already have a lot.

 

"The inflation we are experiencing is supply-led, not demand-led. Raising interest rates stifles demand, which in this case only deepens a recession and doesn’t effectively tackle the problem it’s trying to solve."

You should get a job at the B of E . (No - I am not being sarcastic)
Demand driven inflation is lowered by increasing taxes/ interest rates by reducing spending power of potential customers. However,as you say, the supply shortage is driving up prices making already expensive stuff (including food and energy) unaffordable for many people already struggling. The focus needs to be on increasing productivity - GDP. The problem of giving inflation busting or even inflation equalling pay rises is that, unless it goes hand in hand with increasing output/efficiency then you get a wages driven inflation spiral. Also in service industries already several years into "efficiency savings" AKA 'austerity measures' how can you increase or determine productivity? It has already been accepted that borrowing huge sums to spend your way out of trouble is the road to ruin for any Govt as much as it is for any family or individual as the interest service charges pile up taking even more money out of the budget for essential items. QE (which od course is not an option for individuals and families) drives inflation even higher
I , like you, don't know the answer to this conundrum and echo your final sentence above. large Pay rises particularly for the Health Service workers at all levels (except GP's IMO) are deserved and essential if they are to retain and attract more front line staff. How they fund that and not set a precedent for all Public sector workers AND grow the economy attracting ivestment etc, I have no idea.

 

In the 50s and 60s televisions were astronomically expensive relative to take home pay, buit above all were always breaking down due to teh cfact they used valves in the days before transistors and solid state and microchips. These got hot and did not last long. Renting mades sense because they would loan you a set whilst repairing your hired one which often took several days albeit often something ancient with a 8 inch screen compared to the huge!! 16inch rental one. Renting TVs nowadays makes little sense since the reliability and life expectancy of a TV is far longer than a loan period. Renting for 10 years paying monthly when you would have paid for the thing in 3 or 4 years buying it , with monthly payments not much higher than the rental cost makes little or no sense.

Leasing/rental packages on cars is the big thing at the moment, largely for convenience when it comes to replacing them after 3 or 4 years . It is very expensive though. Buying a new or low mileage nearly new car and keeping it for several years has always been far cheaper in the long run. Again, in the 60s and 70s reliabilty and life expectancy of cars was short ( for example, rust usually started to appear on bodywork around wheel arches, sills and windows etc after 3 or 4 years. Nowadays cars last on average 14 years or more and are infinitely more reliable.

 

The biggest issue is that since 2010 public sector workers have basically not had a wage increase. So the demands the government are dealing with now are effectively 10 years worth of increases. If they’d paid them properly over the last decade there wouldn’t need to be the strikes now.

tldr, Tories have ****** the economy and the country

 

I did offer to help...

 

Drop me a line in 6 months (when it has 6 months left) and I'll help mate.

 

Rob - when is your deal up? Want to send me a few details on DM and I can give you a few thoughts?

 

The Tories have led this country into such a financial mess we will soon be asking Greece and the Ukraine to bail us out.

But its all the fault of the unions apparently.