Scrutable

Imrael wrote: Tue Jul 29, 2025 8:44 pm

Lew Dolby wrote: Tue Jul 29, 2025 6:44 pm Interesting analysis.

Haven't worked my way through all the comments on the article but my initial reactions were:

- I'm not sure a 1985 building society would agree to a 4+ times salary for a mortgage;

- Linda, and her husband if she has one, would likely be on Final Salary pensions whereas Jess (and partner) are much more likely to be reliant on the vagueries of the stock market for their pensions.

We bought our first place in 1978. Building Soc allowed 3x my salary and a small allowance for OH's. Back then, the assumption was that a woman would stop working and have kids.

IIRC there was a mini housing boom mid 1980's where you could get a 4x mortgage using some slightly "unusual" schemes. I remember being offered an interest-only mortgage "because you'll move anyway fairly soon and the price rise will ensure you are covered". There were also some sort of insurance-backed scheme my fuzzy brain cant quite recall*. And mortgages in Swiss Francs. It was like a pale shadow of the sub-prime thing, with a hot market and a bit too much "inventive" finance. And indeed, a lot opf people with negative equity a few years later.

Edit - I looked it up. Endowment mortgages. They depended on a tax relief that got abolished in 1984

A friend works on the steadily shrinking endowment mortgages team of a major lender. She deals with people who took out endowments in the 1980s & 90s and are now reaching the end of their terms (apparently a lot of them were extended beyond the original terms, and more money was borrowed without an increase in the endowment policy premiums) an awful lot of people are now finding that they have to repay the capital on the house which will mean selling it. Apparently none of them understood that the money would come due in a lump sum and the endowment policy wouldn't necessarily be enough to cover it. They now have to pay it back when they are retired on a fixed income and can't get another mortgage. It all seems to have been a massive mis-selling scandal that is still playing out.

Lew Dolby wrote: Tue Jul 29, 2025 6:44 pm Interesting analysis.

Haven't worked my way through all the comments on the article but my initial reactions were:

- I'm not sure a 1985 building society would agree to a 4+ times salary for a mortgage;

- Linda, and her husband if she has one, would likely be on Final Salary pensions whereas Jess (and partner) are much more likely to be reliant on the vagueries of the stock market for their pensions.

We bought our first place in 1978. Building Soc allowed 3x my salary and a small allowance for OH's. Back then, the assumption was that a woman would stop working and have kids.

One other point - the house price analysis seems very south-east focused. Or is at least using national figures that have been heavily influenced by south east prices.

House price inflation in London during the period 1985 - 2015 was approximately double what was seen in the North East. Yes - there are regional differences in salaries. However, in 2015 - buying a house or flat - was more likely to be in reach for a millenial away from the south-east.

Back in 2015 you could easily buy at 3 bed semi in Newcastle with that £157k mortage - and a tiny deposit. In fact you could get decent one for £120k.

Of course - people want to live in places where prices are higher. But back in 1985 - if Linda lived in Newcastle - would she have really found it easy to move to London like Jess may be doing in 2015??

Imrael wrote: Tue Jul 29, 2025 8:44 pm ... Endowment mortgages. They depended on a tax relief that got abolished in 1984

If you're referring to MIRAS, that was phased out over 1994 - 2000. And indeed I recall getting it on my first mortgage in 1992.

And that was a capital and interest mortgage which I had to push hard to get. Most lenders were pushing endowment mortgages with growth projections that I could see at the time were ridiculously optimistic.

kerrya1 wrote: Wed Jul 30, 2025 8:31 am

Imrael wrote: Tue Jul 29, 2025 8:44 pm IIRC there was a mini housing boom mid 1980's where you could get a 4x mortgage using some slightly "unusual" schemes. I remember being offered an interest-only mortgage "because you'll move anyway fairly soon and the price rise will ensure you are covered". There were also some sort of insurance-backed scheme my fuzzy brain cant quite recall*. And mortgages in Swiss Francs. It was like a pale shadow of the sub-prime thing, with a hot market and a bit too much "inventive" finance. And indeed, a lot opf people with negative equity a few years later.

Edit - I looked it up. Endowment mortgages. They depended on a tax relief that got abolished in 1984

A friend works on the steadily shrinking endowment mortgages team of a major lender. She deals with people who took out endowments in the 1980s & 90s and are now reaching the end of their terms (apparently a lot of them were extended beyond the original terms, and more money was borrowed without an increase in the endowment policy premiums) an awful lot of people are now finding that they have to repay the capital on the house which will mean selling it. Apparently none of them understood that the money would come due in a lump sum and the endowment policy wouldn't necessarily be enough to cover it. They now have to pay it back when they are retired on a fixed income and can't get another mortgage. It all seems to have been a massive mis-selling scandal that is still playing out.

Endowment mis-selling did indeed result in lots of people getting compensation payments, because mis-selling was illegal. But another part of the scandal was the large commissions people were getting to persuade people to take out the mortgages. Because they'd project large returns on the endowment, and it would still be fairly large after they'd taken a large skim off the top. That wasn't illegal and there was no compensation for that, except possibly in an indirect way. The sellers would often project pay-outs of double the repayment value, showing "look how conservative this is, bound to pay off your mortgage". But such is the way that compound interest works, it doesn't need the average rate of return to fall far for it to fall short of even paying it off. Which in general happened, as returns on investments fell, and not forgetting the large skim being taken which also has a large effect on returns because of the compound interest effect.

I don't know what the formula for endowment mis-selling compensation was. But people were getting amounts like £10,000, not the full shortfall to whatever they might have believed. One way of looking at it is that in a sense these people were OK, if only they'd been properly informed, in fact even more so than the WASPIs. Because interest rates fell as investment returns fell. So they were paying less interest on their loans than they would have expected when they took out the mortgage. If they had realised - as I did - the implications of that, they should have been saving the money that came from the reduced interest payments. That would have given them plenty to pay off the principle. But most people didn't realise that. And ultimately if they had just taken out a repayment mortgage, they'd probably have been even better off. So maybe that was the origin of the compensation for the "negligent advice".*

And another part of the scandal was that these deals to get large mortgages were often contingent on taking out over-priced and ineffective "payment protection" insurance policies with parties linked to the lender. I was forced to take out one of these. But I realised it was money for nothing and cancelled it and stopped paying after a while and nothing happened. I recognised it as a "hidden" interest rate increase for the increased risk on my "high" loan. These insurance policies to protect against you becoming unable to keep up with the mortgage payments were often scams, because such were the limitations on the situations you could claim that in many or indeed almost all realistic situations of become unable to pay, you couldn't claim on them. I read of one case where it was so improbable the insurer would have to pay out that the premiums were over 90% profit. Again this was an actual scam, and there was compensation available for these quasi-fake payment protection schemes too.

But these are quibbles in relation to the article, which is about an overall assessment set into a short, chatty article. The general idea doesn't depend on getting the details totally accurate. It gives some orders of magnitude. I liked the article.

The wider point it makes is that nation needs to reduce the amount of pension we pay to older people, who are, on average, much better off than they used to be, largely because they mostly own their own homes and don't have outgoings for that. The state budget needs to spend less on pensions, and if it doesn't it is young people who are paying their better-off-than-they-used-to-be elders. So if the WASPIs think that they are going to get the equivalent of pensions from 60, they have another thing coming. As I said in an earlier post, it was sh.tty but not illegal that they didn't get properly informed. But the compensation, if any, you get for such not-at-all-illegal shittiness isn't to be put back to pension at 60. It is probably at best an ex gratia token some representing the shittiness of it. Like the endowment mis-selling scam didn't actually get people back to the high returns they might have got if investment returns had - improbably - remained at 7% for 25 years as the sellers tried to persuade you would happen. And that was actual law-breaking.

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*Though repayment mortgages were typically unavailable for the larger loan:income ratios. I saw what might come if interest rates went up, which I guessed they might, and only borrowed 2.7 times my salary in late 1988. I could only get a "good" mortgage for 2.5 times, and was advised to take out a top-up loan for the 0.2, which I paid off after about 3 years. That was the one that required a payment protection policy. At peak interest rates of 15% in the early 90s, I was paying out 60% of my after tax salary in loan payments. Many people survived because they had 2 incomes, though I was single and just made sure I survived. As interest rates fell, I did not expand my outgoings very much, and so ended up with a lot of savings later in the 90s, enabling me to upgrade my house in 2000. I didn't actually make any money on my first house. Corrected for inflation, I sold it for the same price I bought it in 1988, even though I had improved it. But that inflation - which I'd paid for through those high interest rates in a kind of forced saving - was such that the cash price for selling gave me a sufficient down-payment to upgrade to a house nearly twice the price.

We had an endowment mortgage when we bought in 1986, and it was based on economic growth being at a certain level.
We basically paid the interest, and a lowcost endowment policy would accrue enough to pay off the capital after 25 years.
The interest rate was historically high to start with, as were our monthly payments, but over the period the rate dropped, as did the performance of the endowment policy.

By the noughties, it was realised that there would be widespread shortfalls and there was a compensation scheme for people who had been mis-sold policies (on the basis of unrealistic growth, rather than hidden commissions). We regularly received letters advising that there might be a shortfall.
However, due partially to inertia and partially to having more disposable income, we had not reduced our monthly payments in line with reductions in the base rate for several years, so in effect, were well on the way to paying back the capital.
About 3 months before the 25 years ended, we got a pro-forma letter advising that the shortfall could be about £8,000 (over 25%), but when it came to it, they ended up paying us out just over £5000.

We didn't claim for 'mis-selling' compensation because we reckoned the reason for the low endowment growth was compensated for by the lower bank rate, so it would be wrong to demand compo for one while benefitting from the other.

We had an endowment from 1978. The difference then to the 80s and 90s was that the value started at the level needed to pay off the mortgage - anything above that was profit for us. Was so well structured that, when we left London in 2001, we kept up the endowment until it matured much to our advantage.

Endowment selling the the 80s-90s should have seen some serious penalties, not just for the fin companies but also for the people who devises and/or authorised them. As you say, a great many people lost out really badly when the forecasts proves to be pie-in-the-sky.