Mortgage salary multiples

Love_bargains_2

Once upon a time, banks would only lend 3x (ish) your salary for a mortgage. Gradually this multiple went up to 5x or even 6x (which explains most of the reason why house prices doubled over the last few years).

My question is: for the people actually able to get mortgages now what kind of salary multiple are they getting?

Also, does anyone think that the banks may have a mortgage/salary multiple limit imposed by law, given recent events?

If the banks go back to the old 3x multiple we should expect house prices to fall by 50% peak-to-trough.

Me and my other half sold our respective properties a couple of years ago and moved in with my family. Now and we'd like to buy a place to live together, but I'm worried that house prices still have a long way to fall, which means we should wait a bit longer.

alexlyne

In my experience after talking to both the Halifax, and an independant (not w-o-m), the amount they were willing to lend was 4x mine and my fiancees combined income (gross income minus expenditures on pensions, student loans etc). Of course, borrowing this much assumed we could raise a deposit of at least 15%, if not more to get a decent mortgage.. which made the value a bit pie in the sky.
We haven't been through an approval process and had any firm offers yet... but our chances are a lot better as I'm selling in order for us to move into a bigger place. As a first time buyer (which i know you're not, but as you don't have a current mortgage), the rates and options are much better if you have a 25% mortgage (maybe 15% in some places), otherwise you would be stuck with a 3 or 5 year fix at 6.5% plus (ish). But don't quote me on that, it was the last I heard a few weeks ago and things are still changing day by day.

poppysarah

Do you have a big deposit saved? That's going to be more important as time goes on.

sarah_elton

Been playing with HSBC's mortgage calculator over the last year since we've been watching the market, and now, it'll give us 3.5 times our combined gross salaries, regardless of deposit size (even at 50-60% deposit).

Before, with a big deposit it used to go much higher...

Sensible times are here again. We never would have taken out what it said they'd lend before. Mortgage repayments would have been nearly all our net income. :eek:

poppysarah

But the 3.5X should be a measure of how much you can afford to pay without overstretching - the deposit just means you can buy more house?

50K deposit and a 3.5X mortgage for 100k means you cna buy a 150k house.
10k deposit and a 3.5X mortgage for 100k means you can buy a 110k house.
With a 10k deposit - If they want a 10% deposit you can buy a 100k house and have a mortgage of 90k. Which would be less than 3.5X your income

Or is it not working like that?

tara747

3.5x and 4x joint salaries, YIKES!!!!!!!!!!!!!!!! Too much! Interest rates are likely to go up quite a long way from HALF A PERCENT, consider that when you borrow!

I would never borrow more than 2.5x joint as an absolute maximum. And we have a large deposit (and rising).

alexlyne

tara, I totally agree... I was shocked when the financial dudes told us the amount we could borrow... it's the attitude that people have when told they can borrow 5x salary that they go ahead and do that, not realising that it can stretch them too far!

We are aiming for approx 3x combined (3x being the limit), and hopefully less if the right property comes up. This gives us an affordable repayment rate.

Love_bargains_2

Interesting to hear that multiples have come down - to be honest I hope they stay that way, I think the 5x and 6x multiples are the main reason the UK property market became such a massive pyramid scheme (bigger than that goon Madoff in the US we're hearing about).

But that does make me worry for the time being that there's still a lot of air to come out of the pumped up property market. Here's a terrifying extract from a newspaper article I saw yesterday:

"The Numis report predicts that house price falls will accelerate in coming months as amateur buy-to-let investors begin to 'panic sell' their portfolios. The biggest collapse will be in the glut of city centre flats and executive homes built in the past decade, it claims.

Numis suggests that the average house price - around £160,000 even after recent falls - is over-valued by between 17 per cent and 39 per cent.

It calculates that the average house price should be just £96,000, based on average earnings and the old lending limit of three times salary plus a 25 per cent deposit."

If this is a fair prediction (and it seems to be reasonably well argued) sellers still have to come to terms with further price cuts on top of those from recent months. As we know, prices are 'sticky' when they're going down so it's going to be another 12-18 months of [strike]bad news[/strike] price drops.

What a mess! Whoever said there was a property shortage in the UK had no idea. I was looking for properties online yesterday and I have bookmarked 26 properties. Of those, 21 are quite clearly unoccupied (based on the photos: no furniture/possessions). There's only a shortage when people have to start sleeping on friends' sofas because there's nowhere else for them to live.

besonders1

I think there is definitely a shortage of properties that are priced within the traditional affordable salary multiples.