What are reasonable house prices?

white_noise

mitchaa wrote: »

Food, bills and normal living expenses would surely see to the above home being repossessed.

unless that person had savings to dip into to make up the payments for a short while
WN

chucky

mitchaa wrote: »

I can't see how anyone would be able to afford a 15% mortgage rate and a 3.5x multiple without help from a 2nd income source.

£25000 income after tax is £1588, An £87500 mortgage at 15% is £1120

Just over 70% of take home.

Food, bills and normal living expenses would surely see to the above home being repossessed.

that's one reason why any current ot future governments will have to keep interest rates at affordable levels to protect those on SVR's and trackers - that's 60% of people on mortgages

white_noise

chucky wrote: »

don't forget that dependent on age your salary in year 10 (and if you go out further even more) of your mortgage will be higher than year 1 of your mortgage and will not be 3.5 times your initial income.

many people forget this.

Why is this?
WN

ukcarper

As on old !!!!!! reading this post I have come to realise that there is not much point in comparing historic house prices with today’s as society has change so much. Back in the seventies a lot less people went to university if fact from my secondary school in a very affluent area only 1 person did. People got married a lot younger and lived with their parents until they did. I was married by the time I was 22 and most of my friends were married around that time. We manage to save a 10% deposit + legal fees in the 18 months before we got married and moved into an almost empty house no Tele etc. I can’t see peopledoing that now

ninky_2

Actually the average (only figure I could find was mean so distorted by high earners) HOUSEHOLD income in London is £766 a week = £39 832 a year. You can't just double incomes because there are two earners as this doesn't take into account the single people or gender differences in incomes.

ukcarper

mitchaa wrote: »

I can't see how anyone would be able to afford a 15% mortgage rate and a 3.5x multiple without help from a 2nd income source.

£25000 income after tax is £1588, An £87500 mortgage at 15% is £1120

Just over 70% of take home.

Food, bills and normal living expenses would surely see to the above home being repossessed.

A bit of poetic licence you wouldnt have got a Mortgage of 3.5 joint income in the seventie s/ early eighties

chucky

ninky wrote: »

Actually the average (only figure I could find was mean so distorted by high earners) HOUSEHOLD income in London is £766 a week = £39 832 a year. You can't just double incomes because there are two earners as this doesn't take into account the single people or gender differences in incomes.

this spreadsheet below does

http://www.statistics.gov.uk/downloads/theme_labour/ASHE_2008/tab7_7a.xls

http://forums.moneysavingexpert.com/showpost.html?p=19587237&postcount=22

lukekelly_2

House prices are reasonable if people are prepared to pay them. They are unreasonable if they are not. If you don't like them then rent.

It is not house prices that are unreasonable here, they are set by supply and demand. We are the unreasonable part. Irrational ebullience or fear leads us to be prepared to pay strange strange prices.

You can't just double incomes because there are two earners as this doesn't take into account the single people or gender differences in incomes.

Looking at couples removes those gender related issues that may or may not exist in the income averages.

mitchaa

tara747 wrote: »

Errrr.... since when was it normal to borrow 3.5x JOINT salary???? That's my point. 3.5x joint (or 7x single!) mortgages are insane.

Thank goodness for this HPC, when it has bottomed out people will no longer have to borrow 3.5x joint salary to buy an average house and might actually be able to afford to have a life as well as a mortgage! :beer:

I think you've had your head stuck in the sand the last 10 yrs and even now if i am being honest.

Every lender out there offers more than 3.5x joint, C&G branch are currently offering 5x joint

So i see 3.5x as perfectly normal, and easily affordable.

Just to illustrate....

Male on £30k (£1875)
Female on £20k (£1300)

3.5x = £175k mortgage

Earnings are £3175, mortgage at 5% = £1023.

I see £1023 out of £3175 as very affordable if you are asking me as it equates to less than a 1/3 of the take home. (32%)

Even if the female was to drop down to PT in order to raise children, the income would still be £2600pm (39%) or with the child related benefits that they would expect £2800pm (36.5%)

There is no argument that 3.5x joint is not affordable as, as above it clearly is.

JayScottGreenspan

I'd say the average house price should be about 5 times the median full-time wage:


According to the derivatives markets the property market is (as usual) on course to overshoot that:
http://www.sprefs.com/index.php?page_id=169

Of course, if interest rates were to remain low for medium to long term then the correct income multiple would rightly change. How likely is it that interest rates remain low throughout the next decade? Pretty slim, I'd say.