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The Scenarios Begin At: 1990, 1994, 1997, 2000, And 2004. Each Scenario ...

The scenarios begin at: 1990, 1994, 1997, 2000, and 2004. Each scenario occupies its own worksheet on an excel workbook (.xls).
Calculations from the first scenario: first purchase in 1990.
Average house £68,950.
Initial purchase, a two-bedroom flat70% of £68,950 = £48,265
Mortgage 95% of £48,265 = £45,851.75
Mortgage rate14.64%
Household income£17,752
Mortgage calculations were made using annual interest (i) with monthly payments for n years. The formula for the annuity-immediate is:

Using a mortgage rate of 14.64% and a compounding period of 20 years:



To calculate the annual mortgage payment:

Repairs cost 1% of the purchase price = £483
.
For the next four years the cost of housing does not change, however the salary increases by 3% over inflation so that each succeeding percent is divided by the salary increase as follows:
41% ÷ (1.1041) = 37%
37% ÷ (1.0730) = 34% etc. hence the rapidly declining burden.
Results
The calculations were all performed on their respective spreadsheets. The results up to age 31are summarised below. The rest of the table is in 10028.xlx (summary page).


Summary of Results










housing cost as a percent of gross income








age
1
2
3
4
5


1990
1994
1997
2000
2004

 22
41%
18%
19%
19%
27%

23
37%
17%
18%
19%
26%

24
34%
16%
17%
18%
25%

25
33%
15%
17%
17%
23%

26
31%
14%
16%
16%
22%

27
24%
24%
29%
40%
38%

28
22%
23%
28%
38%
36%

29
21%
23%
26%
35%
34%

30
37%
41%
61%
57%
54%

31
36%
39%
57%
54%
51%


The key ages are 22, 27 and 30 where the couple made a house purchase. In the intervening years the percent declines as expected then, in all the cases but the first scenario, the ratio jumps with the purchase of a larger house.
The graph below illustrates how the purchase of third house is, in general, the largest burden on the household, with scenario 3 peaking the highest at over 60%.

Discussion of Results
As mentioned each of the graphs has the same behaviour. The heights of the peaks are determined by the underlying economic conditions. The current bank rate and the accumulated growth of housing prices will result in the housing burden being a greater percent of salary and the accumulated growth of salary will lower the accumulated burden.
Our first time buyers spent a slightly greater percent of their household income than historic figures. The table below compares figures from National Statistics with our scenarios.

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