3.5 x Average Earnings supported Average house prices of £200,000

Dan:_4

In the end, it was a wild goose chase. When The Daily Telegraph reported last week that Lord Turner’s review of banking regulation would include a cap on mortgages of three times income and a blanket ban on 100% mortgages, the industry assumed it was a genuine leak.

No such limits were announced. There may be future restrictions on mortgage lending, but they will take a more sophisticated form. And we will not get a firm idea of any changes until the Financial Services Authority (FSA) produces another document in September. Even so, the exercise reminded us how people often get the relationship between restrictions on loans and the housing market wrong.

For a start, average incomes of home-buyers are different from those of the population as a whole. At the peak in the summer of 2007, the median income of a first-time buyer was £35,600; for movers, it was £45,600, compared with less than £25,000 for the population as a whole. This meant a median loan-income ratio for first-time buyers of just under 3.4, while for movers it was just over 3. Borrowing at this level supported an average house price of £180,000 to more than £200,000.

http://business.timesonline.co.uk/tol/business/economics/article5948679.ece?Submitted=true

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Hopefully this clears a few things up about the 3 x Income saga.

mewbie_2

It's a piece in the Times having a pop at the Telegraph. For a start anyone with a 90% mortgage a year ago is almost certainly now on a 100% mortgage.

PasturesNew

Good stats, I always wondered that because average salaries include people who are 16 and people who are 66.

themanbearpig

The times property articles always mention the 5% detached price rise. They mention it in every article, even if its not relevant.

"Price of detached homes rises"
"Glimmer of hope eases house price misery "
"In defence of 100 per cent mortgages "
"Glimmer of hope eases house price misery"

Graham_Devon

So whats it saying?

It's ok, only those above the average wage can buy a home?

Whats new?

A_Nice_Englishman

Many properties are bought jointly by couples. Are the income figures stated those of each individual or joint incomes?

obsessed_saver

How'd they come to £180k to £200k from £35.6k average income for a first time buyer, and £45.6k for a mover on a 3.4 multiple?

Let's assume 15% deposit raised:
£35.6k * 3.5 = £124.6k mortgage + £21,988 (15% of property price) = £146,588 property price

£45.6k * 3.5 = £159.6k mortgage + £28,164 (15% of property price) = £187,764 property price

(Ok, granted the movers will have a bigger deposited.)

LydiaJ

Dan: wrote: »

For a start, average incomes of home-buyers are different from those of the population as a whole. At the peak in the summer of 2007, the median income of a first-time buyer was £35,600; for movers, it was £45,600, compared with less than £25,000 for the population as a whole. This meant a median loan-income ratio for first-time buyers of just under 3.4, while for movers it was just over 3. Borrowing at this level supported an average house price of £180,000 to more than £200,000.

Graham_Devon wrote: »

So whats it saying?
It's ok, only those above the average wage can buy a home?
Whats new?

What it seems to me to be saying is that, at the peak in the summer of 2007, homes were only being bought by people with incomes well over the national median income. Anyone who has ever given the housing boom more than 5 seconds of thought is well aware of that.

It would be more interesting to have some stats with some history. Over the last 10, 20, 30 years, what changes have there been in the relationship between median incomes of FTBs, movers, and the general population?

mp2

LydiaJ wrote: »

What it seems to me to be saying is that, at the peak in the summer of 2007, homes were only being bought by people with incomes well over the national median income. Anyone who has ever given the housing boom more than 5 seconds of thought is well aware of that.

It would be more interesting to have some stats with some history. Over the last 10, 20, 30 years, what changes have there been in the relationship between median incomes of FTBs, movers, and the general population?

forget first time buyers. these are the stats for the entire market on a historical basis.

1985 average salary = £9k average house price = £33.2k ratio= 3.68
1990 average salary =13.8k avergage house price = 62k ratio = 4.49 (last housing bubble)
1995 average salary =17.4k average house price = 53k ratio= 3.04
1999 average salary = 20.8k average house price = 72k ratio = 3.46

2007 average salary = 24k average house price= 200k ratio=8.33

note that these are not mortgage ratios, these are the historical house prices.

this tells you either 2 things.

a) house prices were in a massive bubble.

or

b) during the biggest debt bubble in history, current house prices represent the true value of property. all previous valuations in the history of property were in fact wrong.

oh dear, oh dear, oh dear.

chucky

mp2 wrote: »

forget first time buyers. these are the stats for the entire market on a historical basis.

1985 average salary = £9k average house price = £33.2k ratio= 3.68
1990 average salary =13.8k avergage house price = 62k ratio = 4.49 (last housing bubble)
1995 average salary =17.4k average house price = 53k ratio= 3.04
1999 average salary = 20.8k average house price = 72k ratio = 3.46

2007 average salary = 24k average house price= 200k ratio=8.33

note that these are not mortgage ratios, these are the historical house prices.

this tells you either 2 things.

a) house prices were in a massive bubble.

or

b) during the biggest debt bubble in history, current house prices represent the true value of property. all previous valuations in the history of property were in fact wrong.

oh dear, oh dear, oh dear.

a question for you - have you taken the average house price using a mean or a median average?

JoolzS

Thanks for those stats mp2. I'd love to know where they came from because they pretty much back up my experience. I'm still half regretting not moving from my ickle two bed flat into a nice three bed house in around 2001/2.

I've watched prices go up and up over the past few years and have found it sadder and sadder that a normal couple earning a normal wage can't buy a normal FTB property (and by normal I mean a one or two bed flat - not a three bed house).

The figures you posted seem realistic - and rather sad. DH and I have discussed how we feel about our nieces' and nephews' expectations of owning property and it did seem almost impossible (they have "normal" jobs). With house prices plummetting it might be hopeful for them again.

(Apologies if this is a slightly wandering post - vino and tiredness are to blame :-))

Julie