3.5

Cleaver

macaque wrote: »

The FSA are going to link mortgage offers to income. One suspects the figure will be in the range of 3.5 to 4.0 X income. House prices are going to have to drop a long way to get back into this zone (incomes are also falling).

So the average wage in this country is around 25k (although I know there's debate around this). Most people in the UK buy a house between two people as part of a couple. The average house price is around 147k in Feb 2009 isn't it? So even with no deposit we're already at an 'average' multiple of 2.94 for joint buyers.

I appreciate that we're still in the realms of nearly 6 times income for the average single wage in compared to the average house, which is far too high. However, I would question the fact that if you're a FTB, or don't have a deposit, you shouldn't really be aiming for the 'average house' though.

Edit: I've just looked at the article and it doesn't state any multiples, is this you just assuming Mr Monkey?

macaque_2

Cleaver wrote: »

So the average wage in this country is around 25k (although I know there's debate around this). Most people in the UK buy a house between two people as part of a couple. The average house price is around 147k in Feb 2009 isn't it? So even with no deposit we're already at an 'average' multiple of 2.94 for joint buyers.

I appreciate that we're still in the realms of nearly 6 times income for the average single wage in compared to the average house, which is far too high. However, I would question the fact that if you're a FTB, or don't have a deposit, you shouldn't really be aiming for the 'average house' though.

National average salaries are lifted by high earners in their middle age. The income of the average first time buyer will be a lot less than the national average salary.

There is another problem. If you go back a few years, FTB homes had 1000 sq feet of living space. This was enough to raise 2 children up to the age of 6. FTB homes are now 350-500 sq feet. This is not enough for small children (bear in mind that FTBs are much older these days). With the prospect of more stable house prices and the prohibitive cost of stamp duty, people are much less likely to buy an interim property. Starter homes will become rental stock and places for single people. Many FTBs will be looking for an 'average home' as their minimum requirement.

In terms of earnings multiples, the old formula did not account for the full multiple of both incomes. Given that the UK is now a world leader in divorce, I also suspect that lenders have much less reason to trust in the safety of two incomes.

epz_2

Cleaver, the reason theres debate average vs median wage is pretty simple, if bill gates moves to my town the average town income will jump into 7 figures, that doesnt mean my town will suddenly be filled with supercars and mansions.

last I heard median wage was closer to 23k but its even worse than that, most couples tend to want kids so its pretty unusual to have 2 average people both earning and looking for an average house.

Cleaver

epz wrote: »

Cleaver, the reason theres debate average vs median wage is pretty simple, if bill gates moves to my town the average town income will jump into 7 figures, that doesnt mean my town will suddenly be filled with supercars and mansions.

Yeah, I understand the maths, but I know what you mean (pun intended). I think we've done the mean / median / average debate to death on here before.

I still happen to think that taking everyone's salary in the UK and dividing it by the amount of people questioned gives you a useful figure to work with.

And just to be pedantic, if you have a town of 50,000 people who all earn 25k each (thus the average wage is 25k) but then someone moves to town who earns £50 million a year, the average wage of the town only increases to 26k. But I know what you're saying.

epz wrote: »

last I heard median wage was closer to 23k but its even worse than that, most couples tend to want kids so its pretty unusual to have 2 average people both earning and looking for an average house.

But looking at averages is looking at averages, surely? Regardless of whether you want kids, boats, designer colthes etc.

I'm in pretty broad agreement with everyone else anyway, prices need to come down to match average wages. That's just common sense. But where I live oooop north, we're pretty much at the stage, I think, where a couple both earning 20k a year can afford a good FTB type property, such as a two bed terrace.

Cleaver

macaque wrote: »

National average salaries are lifted by high earners in their middle age. The income of the average first time buyer will be a lot less than the national average salary.

But ergo the house they buy will not be as big, or maybe in such a nice area, as the 'average' house?

As I've said, the main thing is that prices come down to meet people's wages. Which no one could argue is a bad thing.

lynzpower

VfM4meplse wrote: »

Aren't you assuming that people only buy more expensive homes as an income generator rather than actual need? Everyone needs a roof over their heads; capital gains are only realised through additional homes. If there are no FTBs those who can potentially afford to move won't be able to if they can't sell their own properties.

but what you are missing here, is with restricted lending the capital gains will be a hell of a lot smaller than we have seen before, if they exist.

b0rker

Average salary in Inverness is about £20K PA. One bedroom flats in Inverness can now be had for about £80K (still asking £90K 2007 prices mind you), say 10% off of the top of the market in 2007. That is about right then. No big deal really. 4x will not affect my local market. Will it be a big deal in London? What is the average London salary? I was on £25K in London in 2001 and that was not major. Must be about £30K average salary there now? How much is a 1 bed or a studio flat in London these days? £120K? Decent FTB purchases.

silvercar

We first bought as a couple in 1986. The max mortgage allowed was 2.75 x joint salary,we had 90% LTV. As recent graduates that was the multiple we took. The same flat would need to drop by 10% to make it available at 2.75 current salaries for the jobs we then had.

stevetodd

silvercar wrote: »

We first bought as a couple in 1986. The max mortgage allowed was 2.75 x joint salary,we had 90% LTV. As recent graduates that was the multiple we took. The same flat would need to drop by 10% to make it available at 2.75 current salaries for the jobs we then had.

Strangely enough 10% is about my (min) guestimate for further falls (max 15%)

michaels

Another useless idea because:
1) We all have different commitments on our salary - loans, child maintenance, student loans etc - hence affordability will differ for anyone
2) Interest payments depend on interest rates which depend on inflation - if inflation hits 20% and interest rates 25% then 4x income is completely unaffordable
3) Personal preferences - some will be happy with no/old car no meals out, ciggies or alcohol in order to have a nicer house, others obviously have different spending priorities - shouldn't each person be allowed to chose what share of their income they spend on their mortgage?

Any of the people saying this is a good idea got a counter arguement for any of these?