3.5

mrposhman

housesitter wrote: »

Income multiples are an indicator. They are not a good method of affordability.

I'm looking at a house which is a 4.8 multiple of my salary after my deposit, and I will have no problem in affording it on my own.
The mortgage will be 47% of my salary after tax.

I have no issue with that. I'll be banking 250quid every month after living expenses are taken care of and have a 6month emergency pot available to fund payments is I lose my job (unlikely since I just had a pay rise).

Additionally, I will have a lodger who will be contributing towards 35% of the mortgage !!

But, so many places are denying me a mortgage because of multiples.
I have no car or other loans and small out goings. But Joe Average isn't as frugal so I'm suffering.

What happened to personal circumstances?
A small number of irresponsible people have really !!!!!!ed it up for those of us who've been saving and waiting for the inevitable falls.

spot on. I'm personally of the belief that income multiples actually serve no purpose. What happened to affordability?

Give me a list of your income
Give me a list of your expenses
I (the bank) will work out what contingency you may need
I work out your net income (less housing costs) and see what multiple of THAT amount that I want you to spend.

Say for example you have 2 different people earning £35k per annum.

One has a bank loan of £12k to repay and has student debts to pay. The other has neither. How does a multiple of their salary really highlight who is the better candidate for a mortgage?

Whats more, surely the one without any debts should be able to borrow more (not % terms) of their net income than the other. For example, they may both earn the same amount but one has net income of £1300 a month, the other may only have £800. Working off maybe 70% of these figures (allowing contingency factors etc) then the first person could AFFORD to repay £910 / month and the other £560.

The mortgage options should be worked out AFTER this calculation has been made.

We have such a backwards system that tries to work from the top-down instead of the far more prudent and fair view of bottom-up.

thegibdog

IveSeenTheLight wrote: »

The Median couple is on £48,750, therefore you are allowing a multiple of 2.66 to achieve the house price at £130k

I think you're confusing "median couple" with the "sum of median male and female full time salaries". By definition the two are not the same, surely you can see that?

If you are going to start comparing average house prices to average income then surely average household income is the thing to look at as I believe has been pointed out before on this forum? (under £35k last time I checked)

mitchaa

thegibdog wrote: »

I think you're confusing "median couple" with the "sum of median male and female full time salaries". By definition the two are not the same, surely you can see that?

If you are going to start comparing average house prices to average income then surely average household income is the thing to look at as I believe has been pointed out before on this forum? (under £35k last time I checked)

I believe the average household income is £37k, however, again, you can argue that this figure is skewed as it takes into account non working families in receipt of state benefits, as its average household income, NOT average working household income.

Even at £37k, the average house based on this at 3.5x would be ITRO £143k

So another couple of months of house price drops and average income families will be able to afford average priced homes.

housesitter

mitchaa wrote: »

Keep up, it's not hard, stay on topic my friend. You are clearly not earning the average £26k salary:rolleyes:

I'm on about 29K so do indeed think that my comments are on topic enough to be valid.
After all it's a 3times multiple of only 9K...

I currently bank the same 47% of my salary which a mortgage would cost so I'll know how to live without it. On top of that I pay my rent which is around 325/month thanks to the lodger paying half of it.
All that will happen is I'll bank less every month but own my house (well after 25years at least!).


That you assume I'm on substantially more than that just goes to show why multiples are a bad measure of affordability.

It's down to the individual and we are all different.

It's also a lot to do with house prices. I'll wager 4bed detached in good areas are not sub 200K where you live.

mitchaa

housesitter wrote: »

I'm on about 29K so do indeed think that my comments are on topic enough to be valid.
After all it's a 3times multiple of only 9K...

I currently bank the same 47% of my salary which a mortgage would cost so I'll know how to live without it. On top of that I pay my rent which is around 325/month thanks to the lodger paying half of it.
All that will happen is I'll bank less every month but own my house (well after 25years at least!).


That you assume I'm on substantially more than that just goes to show why multiples are a bad measure of affordability.

It's down to the individual and we are all different.

It's also a lot to do with house prices. I'll wager 4bed detached in good areas are not sub 200K where you live.

£29k and expecting detached 4bed houses is a pipe dream for most around the country. You are correct.

IveSeenTheLight

thegibdog wrote: »

I think you're confusing "median couple" with the "sum of median male and female full time salaries". By definition the two are not the same, surely you can see that?

If you are going to start comparing average house prices to average income then surely average household income is the thing to look at as I believe has been pointed out before on this forum? (under £35k last time I checked)

I can undertand that, if you could show stats for median household incomes it would be good.

I would guess that the figure you are referring to is a full time male and part time female from the link below (£27,250 + £7,800 = £35,000)

http://www.statistics.gov.uk/downloads/theme_labour/ASHE_2008/tab7_1a.xls

If this is the case then it is still a guess. I know many couples both in full time employment (with children) , while I personally was in a two income couple but am moving to one income because we are having a child.

Surely at a guess the average income will be somehwere between the two

A huge change in the type of household incomes is that it used to be a case that only families bought, usually after people were married, however we are now at a time of high divorce and younger people buying their own places.

thegibdog

mitchaa wrote: »

So another couple of months of house price drops and average income families will be able to afford average priced homes.

As long as the banks find that pot of money they had out back all this time but had forgotten about and are suddenly able to start lending it to these average income families...

thegibdog

IveSeenTheLight wrote: »

I can undertand that, if you could show stats for median household incomes it would be good.

I would guess that the figure you are referring to is a full time male and part time female from the link below (£27,250 + £7,800 = £35,000)

It's just a figure I've heard mentioned before - I had a quick search for it but couldn't find an up to date figure. Apparently it was just over £30k in 2006/07, I can't imagine that it will have increased much since then. Although maybe mitchaa's figure of £37k is correct, I work with statistics and know that figures like these tend to vary from source to source!

IveSeenTheLight

kennyboy66 wrote: »

The house price affordability index was less than 3.5 for almost the whole of the 1990's, hitting a low of 3.14.

It was still 4.5 at the end of 2008.

I don't quite see why people deliberately use spurious averages or medians.

Just as average income (rather than earnings) is a fairly spurious figure to use, to try and use average earnings for a couple as the denominator, when a significant part of the the housing market is made up by people buying on a single salary.

Do I think that average house prices will wall below £100k - probably not.
Will they fall below £125k - I think that getting close to a certainty.

I think the figures you are referring to are from here
http://www.hbosplc.com/economy/includes/26_02_09Affordability.xls

You will see the low did go as low as 3.09 in 1995 and a peak at 5.86 for the UK.
Currently the 08 Q4 figure was 4.62.

It's also interesting to see that the 25 year average was 4.01

This spreadsheet also goes to show the variance throughout the UK on affordability. Interesting that yorkshire and Humberside are currently under 4 at 3.94.

Remember also, this does not consider deposits and purely goes by house price - earnings ratio.
Putting down a deoposit will mean that the mortgage is an even lower ratio.

I dont understand your spurious comment. The figures are factually proven

olly300

Rollerball wrote: »

More like double that. £200-£250K and that's not in a great area either.

There is a big discrepancy in the price between studio and one bedroom flats in London.

When I was looking at prices at the peak, studio flats where being advertised for £150K and being sold for £125K and that was in an expensive area.

There as one bedroom flats where being sold for around £250K mark.

I was only looking as it was discussed whether someone I know should sell her studio flat. (She hasn't lived in it for a good few years so it's now a rental property.)