Jump to content
Sign in to follow this  
Van

The one valid bull argument

Recommended Posts

I heard an interesting statistical fact quoted the other day:

 

"Two thirds of the people who lived to be 65 or over in the history of the world are still alive today."

 

Due to advances in medicine and living conditions, people are living longer, and having a longer working life. A 21 year old entering the workforce today may expect to work at least 45 years- considerably longer than their parents generation would have expected to work for.

 

This is a good argument that houses (and mortgages) should adjust to a higher multiple of income that we have been historically used to. Agree or disagree?

Share this post


Link to post
Share on other sites

It sounds like a good argument except that this re-adjustment may actually take many years. First of all, banks are still reluctant to give mortgages to the elderly, especially those getting closer to the current retirement age of 65 or running out of years to repay a mortgage as they still consider 65 to be the cut off age in most circumstances. Secondly, while people are living longer, quality of life is often overlooked when assessing the ageing population. The NHS in the UK is quite good at keeping people alive, but their bodies and minds may well be worn down. Medical science is quite good at keeping us going, not so good at rejuvenation of body and mind and for many jobs it is rejuvenation that is needed.

 

I'm also not convinced by the higher multiples argument, as the banks tried this for most of the last decade, or at least they turned a blind eye to it in the rise of self-cert mortgages. This is the real reason why house prices are where they are an why the UK market has been totally stagnant on sales levels the last 3 years or so. A correction is still needed even if banks suddenly decided that a norm of 4.5 times income is ok, and having got their fingers burnt once I'm not convinced they are that keen to go pursue this again just yet.

 

Age limits

 

The issue mortgage lenders have isn’t so much the borrower’s age when they take out a mortgage (although you generally have to be at least 18), but the age they will be when it’s paid off at the end of the term.

 

Most lenders state that the mortgage must be paid off by the time the borrower reaches 75, but almost all include a clause saying the mortgage must be paid off by retirement - which lenders generally view as at age 65 - unless the borrower can prove their retirement income.

 

======================

 

Are you a first-time buyer over 40?

 

When you think about the struggles faced by first-time buyers these days, someone getting their first mortgage when they’re 40-plus isn’t such a rare thing. In fact, a report by Scottish Widows last month predicted that the average age of a first-time buyer could hit 44 before too long if young people don’t get their heads round saving early on.

 

A quick simple bit of maths: If you took out a 25-year mortgage when you were 44, you’d be 69 by the time it was paid off. So you’d be past the current retirement age which means lenders would want to know not just about your income, but about your plans to fund your retirement.

 

In many cases, banks’ closer scrutiny of mortgages that will still be running when the borrower passes 65 don’t make sense. The current default retirement age of 65 will be phased out later this year. It means employers will no longer be allowed to dismiss staff just because they have reached the age of 65.

 

Many people will choose to work beyond this age, at least part-time. Some won’t have much choice if they’ve spent the preceding years forking out for education fees or bailing out adult children with cash for a deposit for their own home.

 

http://www.lovemoney.com/news/property-and-mortgages/mortgages/11742/youre-too-old-for-a-mortgage

 

Share this post


Link to post
Share on other sites

I heard an interesting statistical fact quoted the other day:

 

"Two thirds of the people who lived to be 65 or over in the history of the world are still alive today."

 

Due to advances in medicine and living conditions, people are living longer, and having a longer working life. A 21 year old entering the workforce today may expect to work at least 45 years- considerably longer than their parents generation would have expected to work for.

 

This is a good argument that houses (and mortgages) should adjust to a higher multiple of income that we have been historically used to. Agree or disagree?

They won't need large homes, and neither will they be able to afford them, when the inevitable FRUGALITY hits the NHS

Share this post


Link to post
Share on other sites

It sounds like a good argument except that this re-adjustment may actually take many years. First of all, banks are still reluctant to give mortgages to the elderly, especially those getting closer to the current retirement age of 65 or running out of years to repay a mortgage as they still consider 65 to be the cut off age in most circumstances. Secondly, while people are living longer, quality of life is often overlooked when assessing the ageing population. The NHS in the UK is quite good at keeping people alive, but their bodies and minds may well be worn down. Medical science is quite good at keeping us going, not so good at rejuvenation of body and mind and for many jobs it is rejuvenation that is needed.

 

I'm also not convinced by the higher multiples argument, as the banks tried this for most of the last decade, or at least they turned a blind eye to it in the rise of self-cert mortgages. This is the real reason why house prices are where they are an why the UK market has been totally stagnant on sales levels the last 3 years or so. A correction is still needed even if banks suddenly decided that a norm of 4.5 times income is ok, and having got their fingers burnt once I'm not convinced they are that keen to go pursue this again just yet.

 

 

 

Of course, I agree with all this - lax lending and favourable interest rates is what has driven the market to where it was in 2007-2011. But it was also, imo, bubble that has also masked some good reason for a long term adjustment to higher values. Given this, prices may not adjust back to the same low ratios that we have seen in previous market bottoms. I just think it's very naive for the uber-bears to expect the Halifax index to bottom at x2.5 average earnings because this is what it has previously done. As I say, longer life expectancy and more years working will be the primary reason why the market could and should find a bottom and then a readjust to a new long term average that is higher than what we have seen previously.

 

 

 

Share this post


Link to post
Share on other sites

That's not a bad point, people could have a bigger lifetime income, so the same proportion allocated to housing will be a higher capital value. I suppose it's sort of balanced by a couple of items;

 

1 - You get a diminishing return for extending the period that you pay a mortgage over, 100,000 @ 5% over 25 years gives a repayment of 585 per month, extending to 35 years with the same monthly repayment only increases your budget to 116,000.

 

2 - You housing wants still probably peak at the same point in your life; when you have a growing family until a couple of years after they move out.

 

I think there has been some move towards this though in the UK, I sometimes read about people of retirement age still having mortgages, I think this is a relatively new phenomenon. I don't know if this is a hangover from the period of mortgage excess we've just been through though, rather than an ongoing systemic change.

Share this post


Link to post
Share on other sites

bump

Share this post


Link to post
Share on other sites

2 - You housing wants still probably peak at the same point in your life; when you have a growing family until a couple of years after they move out.

Interesting point, I'd normally agree with this then I reflect when I attended maternity suites for the birth of my kids. Some parents were into their late 30's, 40's and dare I say it older. So with property more expensive, how many of their brood will flee the nest before they are mid 60's or 70?

 

It was noticeable how few teenagers or early 20 year olds were having kids, maybe in some areas people really do save up for nest eggs or just simply enjoy themselves without having the "accidents" of the swinging 60's. This has all perhaps changed the property dynamic of the 1960/70's offspring and future generations.

Share this post


Link to post
Share on other sites

Create an account or sign in to comment

You need to be a member in order to leave a comment

Create an account

Sign up for a new account in our community. It's easy!

Register a new account

Sign in

Already have an account? Sign in here.

Sign In Now
Sign in to follow this  

×