What are reasonable house prices?

Castleman

Cannon_Fodder wrote: »

Any second income can/should be for luxuries, pensions, holidays, car purchase, whatever.

And guess what - that "whatever" could even be towards your mortgage.

What about the person who says "my wife and I don't want luxuries, pensions, holidays, a car, we want a bigger house" are YOU saying that they can't spend it on that?

mitchaa

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.

Chuckys link above is from the ONS survey carried out of just shy of 30m employees.

A good snapshot i would say

Look at line 252 in the table, the mean salary for London per person, never mind household = £40,354 so already higher than your household income figure of £39,832

Nixxx

lostinrates wrote: »

Just want to say its only been done to death if you are a regular here. reading past discussions often doesn't cut the mustard in attaining understaning, and I think its to be expected it be raised in different forms by newer or less regular posters. As important as our role in fixing Britain is here I think we 'gang' have to remember this is not a closed shop.:o

Thanks for that, much appreciated :beer:

baileysbattlebus

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.

In 1988 / 1989, I forget which, we lived with double digit interest rates which were for a time 15%. - Our mortgage payment almost doubled. It went up from about £400 ish at about 8% to over £750 per month (not all at once!) but over about 6 or 8 months.

The mortgage was for £60k and the house cost £80k, OH who had a pretty decent salary at the time was able to pay the mortgage, rates, household bills, look after the car etc. The house was bought on 1 salary. We had children when we bought our first house so had only one salary to use. That is how we kept it for the next houses we bought.

I worked, our 3 children were pre teen/early teens and ate like adults. Inflation was quite high - so the food bill seemed to go up every week. Unfortunately contrary to poplular belief, for us any way, high inflation didn't mean high wage inflation, my pay was cut, I worked in manufacturing and OH was employed by the Civil Aviation Authority, so no large payrises for him then either. But we stayed employed.

The eldest child had the opportunity to go on a school skiing trip, but we couldn't afford to let him - it was just over £600 (a lot of money at the time), the exchange rate was probably rubbish.

If I hadn't worked I'm not sure if we would have been repossessed, we could probably have managed but life would have been even harder than it was.

We lived in the south east and property was quite expensive (still is), but we were fortunate we bought before the market went totally stupid, and were able to avoid -ve equity, we came out of the house in 1993 with exactly what we put into it. After 6 or 7 years.

ukcarper

I agree there have certainly been a lot harder times to own a house than now

JayScottGreenspan

ukcarper wrote: »

People survived 15% interest rates with the 3.5 salary multipliers, which would be the equivalent of 10.5 x with present interest rates.

No.

A 25 year repayment mortgage at 15% interest is 118% more expensive than a 25 repayment mortgage at 5% interest. So 3.5x salary 'back then' is equivalent to 7.6x salary today.

ukcarper

Assuming repayment a lot of people were silly enough to have endowments back then

7.6 Still a silly multiply though

dopester

Nixxx wrote: »

So, I was wondering, a lot of people of these forums seem to advocate waiting for house prices to fall a bit further to what they consider to be a "realistic price". But what is that exactly? For me a 3 bed semi in an average london area should be around £200k not £300k as a lot of them are now. A one bed flat shouldn't be more than £100k.

Whatever you personally feel is reasonable to pay. You borrow what you are comfortable you can repay - or meet the consequences if you can't repay.

The word Mortgage is actually a concatenation of two French words: the word Mort which means "death", and the word Gage which means "pledge". ..

Alternatively, "I swear on my life" (to repay)

It isn't an excuse that you were somehow seduced by Kirstie & co the boom would continue forever, and house prices would forever treble in value every 10 years. Or that you couldn't expect a period of severe deflation, where in 4 years time you'd be scrambling on the floor in mad excitement to collect were someone to drop 20 pence worth of pennies on the floor.

baileysbattlebus

chucky wrote: »

in the 1980s it was 2.5 or 2.8 times i believe - progressively this changed dependent on your credit score.
the higher the credit score the higher the multiple.

funniliy enough i've just been offered 4.8 times on a 60% LTV with Halifax - i won't be taking that because as you say it would be very dificult to live well.

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.

I posted a link from the Halifax on another thread about first time buyer affordablity. The figures are based on a single salary.

The Affordability Calculation:

A local authority (LA) is classified as affordable if the average house price for a First-time Buyer (FTB) in the LA is lower than someone paid the average earnings in the area can borrow. Gross average annual earnings for the LA are multiplied by 4.0 to calculate the amount that someone on average earnings could 'afford' to pay. For example, if average earnings in the LA are £30,000, someone on average earnings in the area could pay up to £120,000. The LA is deemed to be affordable if the average price paid by a FTB in the LA is less than £120,000 and unaffordable if it is higher.

The multiple of 4.0 is in line with the average house price to income ratio for a FTB over the last 20 years (1989-2008). (Source: Halifax). This is approximately equivalent to an average loan to income multiple of 3.25 plus a 19% deposit, or a 3.5 times multiple and a 12.5% deposit.

Data Sources:

This research is based on data from the Halifax's own extensive housing statistics database and ONS data on average earnings.

Here is the link

http://www.hbosplc.com/economy/includes/31_12_08FTBAffordability.doc

Using their criteria hardly anywhere is affordable by a single income FTB on average salary for the area they live in. But they say it is getting better.

chewmylegoff

Nixxx wrote: »

The average uk salary is just under £25k, which should mean that the average house price should be £75k - assuming the average house is a two bed. As much as I wish is would, I just think it will be a long time before house prices come down that much. I think most people are in agreement that house prices are over inflated, but at what point do we start saying thats a "good price"?

using average wage to try to work it out assumes that 100% of people can afford to buy a house, and the cheapo ones are bought up by people on low wages. this is not, in fact what happens, or what should happen. therefore it is a bit too simplistic to take this approach, as you need to strip out all of the people who cannot afford to buy in any circumstance, and then work out what the average salary of someone for whom it is economically reasonable to buy a house.

if you just say "everyone should be able to" then it becomes pointless for anyone to build houses as there would be no money in doing so. at that point you run out of houses (or at least houses that anyone is prepared to live in), and lack of demand makes the price go up.

the price of a house "should be" either:

(i) the cost of construction (including land), plus a reasonable profit margin to make it worth building the house and selling it on; or

(ii) the price that market supply and demand sets, which if it is sensible supply and demand [i.e. not warped by 125% mortgages, and idiots desperate to make their fortune from property] should be a reasonable approximation of (i).