Is the UK mortgage economy a ticking time-bomb? 52 year mortgages and 5 times your salary?

Question

If only leutenent Columbo was an estate agent

Answer 1

i reckon so, im just waiting for a collapse, as are a couple of my pals who have sold and rented keeping the profit in a bank. interest is due to go up this week to 5%, and it will need to go up again before february. sounds good to me, lots of cheap houses that have been repossessed because silly people cant keep up with the payments when the fixed rate runs out and the payments increase by 40% a month.

Answer 2

The entire UK economy is a ticking time bomb. Lets break it down into sectors.
We were told that the way forward is for us to sell services and technology.

(I use the word mass to refer to the working class)

The manufacturing sector is dead, comparing to what it was 15-20 years ago - So if we import more than we export how do we make money? I do realise that we are exporting high price service and technology but the increased import is cancelling the surplus.

So what have we got in terms of manufacturing?
The ministry of defence contracts cannot sustain 56 million people. So what's left? Car industry? Steel? Chemicals? Pharmaceuticals? Air Travel?

I have always believe that if you aren't manufacturing, recycling and inventing then you can't have an economy.

This leaves the all important services

Linking with other universities in developing countries and selling education isn't going to last that long(they will learn) plus I never see the real benefit of that to the mass (General Public).

Thanks to Tesco, ASDA, Sainsbury's and the likes, we still have distribution centres employing the mass.

Call centres, love or hate them has been playing a major roll in providing people with work, but, look at it the major companies are still looking at ways to cut cost and move these services away from the UK.

Restaurants, takeaway and pubs more services that employ the mass.

Clothing and fashion outlets, some here today gone tomorrow are major players in employing the mass.

Forget farming and mining!

Now the question...
You have a house that cost 30% - 80% more than it should, compare to other EU countries. We pay more tax than we should (another debate) and we pay far too much for base products.

How many people working at shop floor level can afford a mortgage on there own? This leaves people fighting for independence, create unstable relationships or unhappy ones eventually. So if the mass cannot afford a mortgage and to alleviate this the lenders increase the repayment years and amount they lend then we will hit a Titanium way. None of the services I mentioned above provide stable long term employment (50 years) and none of them provide the wage needed to comfortably afford a house.
So we sacrifice family live to compensate (in some cases), lets ask the mortgage lenders one question, where is the next generation of mortgage payers coming from? Immigrants?

Lets do mortgage for life, then we wont have to worry about paying it off once we die. Isn't that renting?

Answer 3

No, and if you think that 5 times salary is alot, there are lenders that offer more than that! The old types of 3x salary is based on the old-fashoined idea of a mortgage being only a third of the man's income per month. We all now know that this is an old fashioned sum especially as women stay at home less and less after children.

Mortgages are still cheaper than renting and interest rates are unlikely to go sky high any more with all of these changes to the financial world.

I remember when Lloyds Bank introduced the 25 year fixed rate at 11% !!! Everyone thought it was great too.

As for the "inevitable property crash", don't hold your breath, people have been waiting for that one for years now. How many times do we have to say

"It's a different economy now!"

Answer 4

It certainly is, look at the Dot Com Bubble, this will follow exactly the same patern. It is known that the goverment do play a large part in trying to sustain any type of financial market, the problem is, they can only do this for so long, and, in fact, by doing so, are prolonging the 'Bursting' of the bubble. These companys offering people 5 times their working salary are deliberatly 'sucking' people in, once interest rate increase, as it has already done so, these people will find themselves in a very tight spot. Credit is at an all time high in the UK and the Banks, and other such organisations are loving it, what they fail to realise though, is if too many people fall into this trap, the banks will benefit from it in a short term sense, however, over a longer term, the banks will in fact loose out.

Answer 5

I had a valuation on a property last week and asked what the valuerer thought. His answer was that house prices were not going to fall as there are not enough properties for sale and that there are too many wealthier people now coming into the UK from europe. I must agree. Don't think you will get cheaper properties when repossesions go to auction. It just won't happen. Auction properties are sought by builders looking for profit and investors who are prepared to push the bottom rung price up, pushing normal settlers/ homeowners out of reach of a possible home.
My home has gone up in value by £100000.00 in just 10 years! great for sellers not good for buyers and no good if you wish to move home. Basically the interest rates will cause the higher priced properties to stagnate until sold to londoners who can afford to downshift. Its happening all the time especially in the north UK and many rural areas.
As for poorer people hoping for a housing crash - Fools you are.
Repossesions also mean decline in high street spending, decline in trade and loss of business and jobs. Ever tried to live on £56 a week or less? Yep I know what poor is too!
Personally I think the Mortgage market should become separated from the bank sector so it can find it's own rates of interest. Banks only want to recieve money at the moment so lower interest rates are not encouraging people to save.
As for 52 year mortgages???? Proof I think that lenders don't give a hoot whether you can pay or not. And the Million pound houses in 20 years time? Either there's plans to create a UK tax haven or the rich of monaco are planning to move!
I like the tax haven idea myself.
New property valuations schemes will cripple us even more. There are few 2 bedroom or larger unmodernised houses left for buyers seeking lower council tax. Don't carry out any more Mods peeps unless you're going underground!
5 Times your salary - shame - wages will never rise enough to cover the payments over a lifetime.

Answer 6

Its a dirty business this getting re-elected isnt it. First you've got to fiddle the official inflation figures so that they dont include house prices. Then you've go to find someone to blame if it goes wrong (eg Govenor Bank England). Then just let it rip - binge on.

What a magnificent example of statesmanship Blair and Brown have provided - appeal to the base instincts of a few and drag the rest of the population into a disgusting orgy.

What foresight, what vision, what leadership, what prudence. What a disgrace.

The UK is now exposed to any world event or whim which upsets this house of cards. While Germany has been restructuring its economy the UK has slithered into some self styled 'Del Boy' service economy based on ever more debt (1.25 trillion at the last count).

The really incredible thing is that something very similar happened in 1988 to 1992 (remember) - unyet they have still got voted back in! The whole thing just beggars belief - it must be one of the greatest scams of all time.

I just hope for the poor souls who have bought at inflated prices, because they feared getting left even further behind, that it doesnt implode.

Unfortunately the reckless manipulators who have got us into this quick-fix insanity will not be the ones paying the price - as usual.

Answer 7

It is impossible to answer that with 1 "overall" answer.

I personally don't think we have a "ticking time-bomb". there are just too many factors that support low (at the minimum) house price growth for some time to come.

The primary one being that demand greatly exceeds supply. Yes, 1st time buyers are struggling to get a foot on the ladder which may reduce demand but the fact is there are simply not enough houses in the UK given population growth (whether internal or through immigration) and changing household trends (more people wanting to live on their own).

If prices do soften and you go into negative equity then it may make life tough for a few years but in the long term property is still a good investment. I should know, about a year before the last crash in the late 80s/early 90s I bought a 2 bed flat for £70k. After the crash it was valued at £55k but I sold it in 2004 for £220k....

Answer 8

No, don't think so
I have a mortgage until I am 72, I have about £100000 in equity, therefore if can no longer keep up the £750 pcm, I can sell up and have enough for a mobile home at worst.

I have to live somewhere, I could rent, but that would be more expensive and no equity at the end. However, if it gets to the point where houses become unsaleable because there are not enough first timers, the market will sink until the the demand balances with supply. I think it highly unlikely that there will be a huge crash in this market, the odd dip like in the late 80s early 90s maybe but not permanent

Answer 9

I am in need of a bigger house, I live in a one bed roomed terraced bungalow with my 2 sons and a partner! I'm in a very quiet and hard to get into area and was planning to get an extension as i can't afford to buy a bigger house in the area. Now zebbie's mentioned that the government are going to tax those with extensions, I really am thinking of applying for a council house again and maybe buy it after 3 years. The only problem with that is i can't really choose the area! Stuck in rut!! Although I can afford the mortgage payments just now no problem, I did it alone for a few years with my single parent wages, now if I were to split from my partner after the rises, I would really be struggling! Renting again seems so tempting. At least I know I can get housing benefit if it all goes wrong side up.

Answer 10

We have been here before and will be again. Inflation isnt all bad - prices go up but so do salaries. My first mortgage 30 years ago cost £24 a month from a gross salary of £130 a month. Inflation has meant that I now have a relatively low mortgage on a house worth £450,000.
Inflation means short term pain for long term gain.

Answer 11

House prices will fall eventually, however when it will happen is another question. When the average house price is 10 times the average salary something has to give. Houses in this country are way over priced.
A 52 year mortgage is simply stupid. I don't know anyone who has spent 50+ years paying theirs off. As most people don't get one until their at least 25 then that would make them 77 before it's paid off. That's 12 years of retirement with a mortgage still to pay. It's utterly insane.
The irony for all the people who have overstretched themselves is that if they had left it and rented for a while then the collapse would have come sooner. It is only because people are convinced that there will not be a collapse and have kept buying that they are still going up now.
I bought my house about 7 years ago for £40,000. It's now worth about £105,000. That's a two up two down small semi in quite a cheap area, an affordable starter home. When starter homes cost over £100,000 what do people on low incomes do? How does someone who earns less than £20,000 a year buy a house?
It cannot go on like this for much longer and anyone who says it will has their head in the sand.

Edit: 4 negative, that's a record for me. I guess a few people on here must have overstretched themselves and now have their heads in the sand...