3 times salary! How ridiculous!

Rolandtheroadie

When I first looked at buying (1998), it was 3.5 times one salary or 2.5 times joint salary.
People never wanted to go anywhere near these limits due to the percentage of their income that would be going on mortgage payments.
But no, the banks gave more, to people who had no chance of ever repaying, and look at us now.
People stopped getting their papers and milk delivered to save £40 a month to pay towards their mortgage.
Look at all the new estates, all the old cars with "private" plates to hide their age as everything goes on the mortgage but they still want the pretence of no financial worries.

If I could do it all again, I'd be in a council house, paying the bargain rent price they charge, no home improvements (we've spent more than it cost us to buy on improvement's / necessary work). Earning/working just enough to get maximum tax credits.

Woby_Tide

poppysarah wrote: »

Punished because of their actual earnings?

Erm yes. If I looked at someones finances who earned £100k a year but had ridiculous monthly expenses and a lifestyle close to their limits I'd prefer not to even lend them 1x their salary. If I saw someone earning £25k who lived well within their means and showed signs of responsibility in their past dealings and currently I'd potentially agree to lend more than 3x to assuming they provided justification.

To turn round to both and say that 3x their salary is a good measure of their mortgage paying ability is crap. Just as offering 6x salary was. Salary/income is no indicator of financial probity.

mp2

Woby_Tide wrote: »

Erm yes. If I looked at someones finances who earned £100k a year but had ridiculous monthly expenses and a lifestyle close to their limits I'd prefer not to even lend them 1x their salary. If I saw someone earning £25k who lived well within their means and showed signs of responsibility in their past dealings and currently I'd potentially agree to lend more than 3x to assuming they provided justification.

To turn round to both and say that 3x their salary is a good measure of their mortgage paying ability is crap. Just as offering 6x salary was. Salary/income is no indicator of financial probity.

the 3.5 times earnings is a strong guideline. obviously you cant calculate every possible scenario for every person, however for a bank its all about statistics, and when taken as an average for 10 million households it equates to average affordability.

the national average salary is around 24k.

3.5 times income = an 84k mortgage

take home pay on 24k salary is 18.4k

mortgage payment for an 84k mortgage at 6% (which is still low) is 6.5k a year.

i.e at 3.5 times income your mortgage will be 35% of your take home pay, which is a fair ratio.

at 4.5 times earnings your mortgage will be 46% of your take home pay.

individual circumstances are irrelevant for banks holding millions of mortgages. only the overall statistics matter, because it is the maths not individual circumstances that will always win over in the long term when you are dealing with large numbers.

PasturesNew

slopemaster wrote: »

3x my salary would only get me around 50% of the price of a 1-bed flat here!
Fortunately I have a sizable deposit, and been offered up to 5x my salary. for me it is still quite affordable, i don't spend much.
So 3x rule does not take enough account of circumstances.

I don't think you've fully understood it.

If all mortgages were strictly limited to 3x salary, house prices would have to drop considerably to accommodate this. House prices are dependent on the ability of people to borrow money, that is why there are cheap areas and dearer areas.

Kirri

clk299 wrote: »

Well, I earn at the top of my profession for my level, inner London, and have a 30k deposit, and I would still only be able to afford to buy somewhere at about £110k allowing for fees and furniture. Which would buy me a studio flat in an undesirable area, if it were to be within acceptable distance of work...

and for those of us who do an average job, ie admin etc - 3 x salary wouldn't even buy half a 1 bed flat on an interest only mortgage even with a deposit in a not exactly great area, some people from outside London don't seem to realise how difficult it is, there are loads of people in bog standard jobs still trying to pay for housing in London yet they assume that everyone is being over extravagant!

rick9525

If my current agreed offer goes through I will be borrowing 2.3 X current salary, total borrowed 55K. I have saved up £30000 deposit + 10K gift from parents.

The house is a 2 bedroom modern terrace which is 88K + around 3-5K for new window pains, house items and moving costs.

I personally would not want to borrow more than 3X salary but in more expensive areas that would be required.

rs82uk

bring it on I say it can only deflate high house prices. As poppy says the govt needs to concentrate on the rental market.
Stop Letting agents charging extortionate fees
Make Landlords be members of some sort of professional body
Bring in Rent control like there is in most of europe and America
Bring in secure tenancy's like most of europe and america

wisbech_lad

Hmm, I would do it the other way round. Mandate 70% max LTV

poppysarah

Woby_Tide wrote: »

currently I'd potentially agree to lend more than 3x to assuming they provided justification.

To turn round to both and say that 3x their salary is a good measure of their mortgage paying ability is crap. Just as offering 6x salary was. Salary/income is no indicator of financial probity.

The justification a bank should expect is a big deposit, saved regularly from their own salary.

I agree that excessuive lifestyle on a big salary should probably be treated with caution. But again the justification is the amount you save.

In the old days you had to save a deposit.
I see that a strong permanent return to this would be beneficial.

A regular relationship with your own bank used to be part of that justification.

I would like to see:

An overall monitoring of your spending, credit cards, savings and debts - so that you can never borrow more than you can actually afford.

A deposit to be saved regularly from your own salary. Banning completely being lent money from other sources.

A sensible lending limit as a multiple of salary.

Of course for it to work you've got to accept that a lot of people have seriously overpaid for their homes. The banks' fault as much as anyone elses. But that's got to be allowed to undo.

Without a return to responsible lending there's no hope for any of us.

Rolandtheroadie

I'm with RBS who have traditionally had poor interest rates. If I were saving at all, the money would not be in one of their accounts so there would be no way of them telling if I had savings or taken a loan from family/friends to cover the deposit.

The Mortgage Indemnity Premium was a way to rip off people who didnt have a minimum 10% deposit, thats why they allowed 100% mortgages.

As said in the post above, its responsible lending thats required. Trouble is, those that are responsible with spending and borrowing ARENT spending or borrowing just now (they're playing it safe and holding onto their cash in case of emergencies) and those who are irresponsible, in debt and want to consolidate one more time, cant get credit.