House Prices, Interest Rates and Affordability

silvercar

ukcarper wrote: »

A quick question what is an average house used in Land Reg figures is it the average cost of all houses sold or is it the cost of what they consider an average house to be.

It is the average cost of houses sold. Being it is a survey not a sample and covers the whole country rather than one area, there shouldn't be much difference.

ukcarper

FATBALLZ wrote: »

Why doesn't it compare? Why shouldn't they be included? The low paid are important in what the price comes out as, as the higher earners need to pay an amount that the low paid can't afford in order to secure the properties.

I’m not sure the low paid have ever been able to afford a property I'm sure the bar has been raised to what you need to buy. But when I first bought I would have had trouble buying on less than I was earning and that was average wage at time. If I had the same amount saved and got a mortgage of the same size in relation to the average now, I would not be able to buy the house I bought back then in the 70s which was a 3 bed terrace and would have to settle for a 2 bed flat instead.

But that is just a snapshot and the exact time you buy has a big impact if I had waited months I wouldn’t have been able to buy the house I did.

ukcarper

FATBALLZ wrote: »

Inflation was also sky high so the debt wouldn't have been high for very long.

True but interest rates were high and were over 16% by 1981

bodgerx

ukcarper wrote: »

I think this is right

Average salary average house price

1980: £5,720 £24 4.2x
1985: £8,890 £32 3.5x
1990: £13,760 £60 4.4x
1995: £17,470 £65 3.7x
1999: £20,800 £93 4.5x
Now: £25,000 £164k 6.5x

Not sure you got those figures from. One thing to bear in mind about average salaries is that it is better to use median rather than mean to avoid skews to the lower and upper end.

Try this article about affordability:

http://blogs.thisismoney.co.uk/2010/02/homebuyer-mortgage-amounts-vs-average-wages.html

I don't think that there is any dispute among the experts that buying your own house is a relatively expensive game compared to 10, 20 years ago.

http://blogs.thisismoney.co.uk/2010/02/homebuyer-mortgage-amounts-vs-average-wages.html

ukcarper

http://news.bbc.co.uk/1/hi/business/593477.stm as I say not sure if correct but I have found it impossible to find any figures for average salary. I understand what you mean by using median but if you could find a consistent set of figures it would give you something to use to compare house prices to. I did manage to find another figure for 1985 and it was the same

ukcarper

bodgerx wrote: »

Not sure you got those figures from. One thing to bear in mind about average salaries is that it is better to use median rather than mean to avoid skews to the lower and upper end.

Try this article about affordability:

http://blogs.thisismoney.co.uk/2010/02/homebuyer-mortgage-amounts-vs-average-wages.html

I don't think that there is any dispute among the experts that buying your own house is a relatively expensive game compared to 10, 20 years ago.

http://blogs.thisismoney.co.uk/2010/02/homebuyer-mortgage-amounts-vs-average-wages.html

Unfortunately those graphs only go back to 1998 just after the bottom of the last crash

bodgerx

ukcarper wrote: »

Unfortunately those graphs only go back to 1998 just after the bottom of the last crash

Yes, but they still heavily suggest affordability is much reduced.

bodgerx

ukcarper wrote: »

http://news.bbc.co.uk/1/hi/business/593477.stm as I say not sure if correct but I have found it impossible to find any figures for average salary. I understand what you mean by using median but if you could find a consistent set of figures it would give you something to use to compare house prices to. I did manage to find another figure for 1985 and it was the same

Office of National Statistics has average salary figures. They put 2009 full-time mean at about £27K. Average house in the UK according to the land registry was about £160K. That's almost a x5.9 income multiple.

Going back to 1979, average salary was about £7K, average house at the end of 1979 was 22K (https://www.homemortgage.co.uk). Income multiple: x3.14.

HAMISH_MCTAVISH

bodgerx wrote: »

Office of National Statistics has average salary figures. They put 2009 full-time mean at about £27K. Average house in the UK according to the land registry was about £160K. That's almost a x5.9 income multiple.

Going back to 1979, average salary was about £7K, average house at the end of 1979 was 22K (www.homemortgage.co.uk). Income multiple: x3.14.

And interest rates were many times higher than today, so the real cost of buying was higher, even though the price of the house was lower.....

The only measure that matters is percentage of income spent on mortgage payments. Which is currently well below the long term average.

phil_b_2

Should the relationship between average wage and average house-price be proportional? Should house prices really rise inline with wages exactly?

I'm not sure where that notion has come from or whether it's really been thought about much.

As wages increase the amount of 'disposable income' each individual has rises exponentially surely?

As an example:
Mr Smith earns £17k. After tax he has about £13,260. After he has paid his council tax, electricity bill and gas bill etc he has about £10,500 left over. After a bunch of other costs He reckons he can service a £5k annual mortgage which at 5% gets him a £100,000 house (interest only - not realistic, just an example here).

He gets a pay rise to £20k, which is about a 17.5% increase in his wages. His living costs havent increased however so after tax his annual disposable income has increased by £2,340. This means he can now service a £7,340 annual mortage and can buy a £147,000 house.

So his wages have increased by 17.5%, but the house he can afford has increased by 47%

Obviously over time his costs would increase too due to inflation, but still, the wage/house-price relationship still wouldnt be proportional.