In response to my piece last week on the housing bubble from a would-be first time buyer’s perspective, my brother-in-law, Radionotme, has written from a homeowner’s perspective.
As someone on the other side of the divide, as Simon puts it, I have to say I broadly agree with what he says. As with most things though, it’s not quite that simple.
To own your own home is an aspiration for most of us, although oddly in some cultures this isn’t the case at all. French, German and Japanese home ownership rates are less than 50% for example.
It is an aspiration I share, and am currently working towards.
Some would say that since I live in a house that I have a mortgage on, that I own that home. I’ll even refer to myself as a homeowner most of the time, but of course the truth is that I do not own the home. The bank, and in turn the institutions that the bank has borrowed from, own the home. If I miss a payment, then my home is at risk of being taken away from me. If I miss several, then this is virtually guaranteed. As such, I do not think I can truthfully say that I own my own home at this stage.
What I can say, is that I am fortunate enough to be on the property ladder. I agree with Simon, that renting is inherently more expensive that buying, but for different reasons. Renting is usually cheaper to start with than buying, but whereas rental costs will increase over time (dependent on market conditions), the price you have paid for a house is final, and the only changes to the monthly payments relate to the interest rate, which can go either up or down (though you may be forgiven for not realising that up is a potential direction for interest rates given the last few years!).
I am currently able to ‘enjoy’ the low interest rates in terms of how it affects my monthly payments, although I remain opposed to them when considering how they affect the wider economy. Even so, my mortgage payments take up between 30 and 40% of my take home pay.
When I first bought my home, and locked into a 6% interest rate for 5 years (oh, what a mistake with the benefit of hindsight), my mortgage payments were over half of my take home pay.
I expected however, and have so far fortunately been proven correct, that my take home pay would increase over time, and so that percentage of my salary that the mortgage payments took up, would decrease.
This plays into Simon’s figures, once you have the relevant context. Mortgages on average take up a smaller proportion of salaries, however that is in part due to people towards the end of their mortgage term won’t be paying much, when compared to those just starting out. Those people are often paying significantly more than their renting peers.
I’d also disagree that 5-10 years ago, prices were ‘cheap’. They may look that now, however even in 2003 there were warnings of an impending house price crash, and reports that houses were out of pace with wage growth. Although I’m on the property ladder, I jumped on years after some of my friends, and years before others. The ones who jumped on earlier were able to make more from the house price rises than I could, even though I bought 10 years ago, and they bought 13-14 years ago.
Finally, I take issue with the rather flippant comment that those on the property ladder don’t care about those not on it. We do, both for selfish reasons, and unselfish. I care deeply that my younger siblings, have and will have considerable difficulty getting on the ladder. I worry for my son, and whether he will be able to own the roof above his head when he grows up. I worry about the wider economy, and how the unending house price rises give rise to buy to let landlords, who have no interest but to make as much money as possible.
I agree that something needs to be done, but I have little faith that any of the main government parties are up to the challenge, or even that it is a problem that government alone can tackle. Whatever the solution though, it has to start with more ‘normal’ interest rates, that can encourage people to save, as well as to borrow.