Interest Rates - Property industry boss warns Bank of England

Are you crazy? It's not normal! The decade of cheap money pumps house prices. It would make sense to pay 4-5% of the interest rate for an average house price of around 180k, not almost 300k. Remember, The BoE do a survey and measures your sentiment. If you say, I'm okay with it, why do not lift interest even higher?

Bart

On my pints of beer index, houses are roughly the same price as they were 50 years ago - around 50,000 pints - but interest rates are still lower than then.

It is more normal than the last ten years. If you look at interest rates over a 20-30 year it's about 6-7%. Those who thought cheap was around for ever are deluded. The BoE has been given a kick start by the Liz Truss budget fiasco but it was needed. The obsession of capital growth and foolish stamp duty hoilday in the pandemic which increased values recently have meant that first buyers had to take on larger mortgages inticed by low interest rates. It had to stop, pensions and savings have been hit and it has been a totally artifcial environment for 10 years but it was never normal.

Robert Brown

How much did you have to earn 50 years ago to be able to buy those 50,000 pints? I bet you that a lot less than you have to earn, even adjusted for inflation. In real terms, the vast majority of people not only in the UK (also here in Australia, and throughout the wolrd at large), salaries have been slowly decreasing in real terms for decades.

The beer index is an interesting way to calculate.
Back in the 1990s I was working in a nightclub and beer was about £3 a pint. My wages were £3.25 an hour. Now beer is about £5 or £6 a pint and minimum wage is nearly £10 an hour.

Jesus

I earned around £3000 and borrowed around £9000 to buy house for £11500. I know pints cost 2/6 in 1967 and think they were about 20p in 1974 when I bought the first house.

I'm pretty sure pints and houses are more affordable now, but many young people prefer buying pints and cofffees to saving the deposit to buy their own house or flat.

I remember it well, we did get MIRAS at that point though. Still eye watering!

There would be chaos on Social Media 😂😂

House prices go up on average by 100% every seven years regardless of of interest rates. The financial criis for home owners was averted but when that calmed down interest rates should have been slowly increased but didn't. The fact we came through this crisis is abit illusionary because we still have the fragility now. Easy to say but you can't take a debt without it being stress tested and most people were hoodwinked in paying over the odds for houses which is understandable but merely exacerbated the problem.

Jo

I agree with everything you say apart from your first sentence.

I don't think house prices are substantially higher now than they were 50 or so years ago, either measured in pints of beer or salary multiples, and measured in cups of overpriced coffee they're substantially cheaper now.

As you say, it's the monthly cost that matters most (especially as a proportion of take home pay). I bought my first house in 1974 for £11,500 on an endowment mortgage and I remember the monthly interest payments were around £95 with full tax relief taking them down to around £65 per month after tax.

I sold that house in late 1977 for £17,500 (it would now be worth around £300,000) and bought my current (much nicer) house for around £30,000 with a new £25,000 endowment mortgage, paying around £225 per month interest together with endowment insurance payments around £5 (I was young and healthy then and lied about my lifestyle!). I am still in the same house, now worth well over £600,000 - so it's a bit more than 20 times what I paid for it but my final salary before retiring was also more than 20 times what I earned when I bought it.

During the course of my mortgage payments, they soared to well over £700 per month at one point before falling way back to negligible amounts around 2010 - just as I finally paid the thing off!

Negative equity is a risk that those buying an expensive property with a high LTV mortgage have faced from time to time, then inflation helps us climb out of it. I still think buying property is by far the best strategy, especially if we can buy more than one and have renters pay them off for us over our working lives.

In buying my first house, I sacrificed the possibility of buying around 40,000 pints of beer but if I were to sell my whole portfolio now totally, I could buy around a million pints with the proceeds (ignoring CGT). I might then be homeless for the rest of my life - but would be oblivious to that and it wouldn't be for long!

Interesting to hear the predicament of HTB buyers.
As one commentator dubbed the scheme: Help To Buy:Votes.
Perhaps I should have more sympathy for those who got a HTB mortgage; even though the Government help presumably partly relied on our taxes.
But I have more sympathy for those who found themselves unable to buy because house price inflation was increased by HTB and Stamp Duty Holiday, as many predicted these would.
Those suffering from the current effects of HTB Jo points out might get to blame the politicians who set up the market distorting scheme (the market now correcting itself). In doing so they can join the club of PRS Landlords being 'stuffed' by stupid politicians interfering. Though at least we shouldn't become homeless, even if some of our tenants might as LLDs sell up.

When I was last an employee in 1977 (HGV fitter for Eastern Electricity) my weekly pay was £39, take home £32, a modernised terraced house would be around £8k in Norwich and I think interest rates were around 6%, today the pay for a similar job would be around £500 a week, a similar house would be around £200k, and interest rates are now about the same, so yes it's all relative

Andrew, your pay seems a bit low. I worked as a lifeguard in London in 1981, taking home £110 per week. We were paid in cash with the corner of the envelope open so we could count it before opening it.

Maybe you earnt more being in London but my last pay packet in 1977 was £32 for the week, I remember it well

Yes Andrew, I got extra for shift pay and London weighting. Also it included shifts working over the weekend with Sat at time and a half and Sunday and bank holidays at double time, remember weekends and overtime rates?

I can remember when they were a bob, what does that make me ?