What would happen if house’s dropped to the magic 3.5 times average income?

Radiantsoul

phil_b wrote: »

I dont even know how the 3.5X rule thing came about. It's pretty abstract.

It is simple and easy to understand. And back then banks had different attitudes, I think bank managers tended to see themselves as respected members of the community rationning credit and lending. Now they are salesmen.

ukcarper

I managed to get a mortgage of over 4.5 my income in 1972 so things were not as tight as some people think.

ash28

Average FTB last year borrowed 3.02 x salary against 4.47 x salary for house price.

2008 - 3.25 x salary and 4.45 x salary for price

2007 - 3.35 x salary and 4.29 x salary for price

http://www.communities.gov.uk/housing/housingresearch/housingstatistics/housingstatisticsby/housingmarket/livetables/

The table is 517.

I think the average income of ftbs for last year was around £41k for the UK
- so maybe 2 x less than average incomes??

These stats are updated once a year.

The table is 515

Looking at the stats it would appear first time buyers have usually put down more than a 10% deposit - on average.

Graham_Devon

HAMISH_MCTAVISH wrote: »

3.5 times salary is an absolute nonsense number that was set as a "norm" over the 3 decades of the highest interest rates in history.

With rates in modern times averaging closer to 5% than the 10% to 15% they used to, then the 3.5 times income could just as easily be 5 to 7 times income nowadays with no adverse impacts.

Are you using joint income, as you usually do? Or using single income?

Either way, 7x income could be devastating to a couple where one loses a job or becomes ill, and you may aswell forget it on a single wage.

7x is probably do-able, but leaves no room for any kind of problem, let alone being able to afford anything else in life.

the_flying_pig

"What would happen"?

Well, for starters, Hamish would probably throw himself off an oil rig or something equally drastic.

And after that [getting away from any silly arguments about whether the 'proper' figure is 3.5 or 3.75 or 4.0 & so on] it would be, well, pretty much the same as it was in 2002 or whenever we were last down at half-sensible levels. More or less like things are now only with housing that was a bit more affordable.

It takes a pretty spectacular lack of wit to believe beyond doubt that the paradigm genuinely did shift in the space of two years [2003/2004 or whatever it was] and that there can't be any going back for any reason. It might not happen of course but...

pingu2209

Working Backwards:

Average income in the South East commuter towns at age 35 may be £35k for a man, £25k for a woman.

The average house is a 3 bed semi. However, a 35 year old man and woman would have lived in smaller properties first such as studio or 1 bed flat, then 2 bed terrace etc.

Each time they moved they would have built up a bit more equity. On the basis they needed 10% deposit for their first property, they would have built up to a 20% deposit to put down on their 3 bed semi.

Joint income of £60k x 3.5 = £210k - with a 20% deposit (say £40k) = Average 3 bed semi in South East commuter town = £250k.

In Crawley you can get a 4 bed house for that money.
In Guildford you can get a 3 bed semi easily for that money.
In Reading you can get a 3 bed semi easily for that money


So basically the average house is 3.5 times the average income. However, many people want to have an average house at 21 before they have worked up through their career. etc. They aren't prepared to live in a studio flat before they move to the next size house etc.

the_flying_pig

pingu2209 wrote: »

Working Backwards:

Average income in the South East commuter towns at age 35 may be £35k for a man, £25k for a woman.

The average house is a 3 bed semi. However, a 35 year old man and woman would have lived in smaller properties first such as studio or 1 bed flat, then 2 bed terrace etc.

Each time they moved they would have built up a bit more equity. On the basis they needed 10% deposit for their first property, they would have built up to a 20% deposit to put down on their 3 bed semi.

Joint income of £60k x 3.5 = £210k - with a 20% deposit (say £40k) = Average 3 bed semi in South East commuter town = £250k.

In Crawley you can get a 4 bed house for that money.
In Guildford you can get a 3 bed semi easily for that money.
In Reading you can get a 3 bed semi easily for that money


So basically the average house is 3.5 times the average income. However, many people want to have an average house at 21 before they have worked up through their career. etc. They aren't prepared to live in a studio flat before they move to the next size house etc.

but, well, that's just really thoughtless, isn't it?

the single male income ratio was in the 3.somethings as recently as late 2002. that's not some ancient sepia-tinted time when women did nothing but housework all day. female participation in the labour force hasn't altered one iota since then.

what's changed is the amount of debt per household, not the number of earners per household. who knows, maybe that's sustainable. my money says that it may be partly but i'd be highly, highly, surprised if it was fully.

ukcarper

Average salary 2002 £20k average house price nov 2002 £118k 5.9x

Exocet

pingu2209 wrote: »

They aren't prepared to live in a studio flat before they move to the next size house etc.

I'm not sure that studio flats used to exist before this latest bubble. Maybe for renting but I can't remember people saying proudly we've just bought a studio flat for 200k. Terraces were the old studio flats, that's like a place that has a bedroom, toilet and kitchen in different parts of the accomodation - rather than expecting you to live like someone on death row.

To sum up. As prices have rocketed then at the same time quality of accomodation has plummeted in order to maintain a veneer of affordability.

Really2

ash28 wrote: »

Average FTB last year borrowed 3.02 x salary against 4.47 x salary for house price.

2008 - 3.25 x salary and 4.45 x salary for price

2007 - 3.35 x salary and 4.29 x salary for price

Not 8X like people make out on here then.

Unless people think everyone should own regardless of wage the idea of 3.5X wage is bizzare.

How many houses would we need.

We have 30% of the housing stock left (not owned by home owners) in that are HA houses, landlord etc. So if we use houses available on RM around 1M I belive as available housing stock.

Logic says if over 50% of the working (10m) population earn over £25K they will not all be able to buy the 1M houses available left to purchase.

10M competing for 1M property tells me that the people nearer £25K will be priced out.

Only way you would get to 3.5X average wage is if there was enough houses for everyone on the average wage.
But even then it ignores the richer ones then buying the houses as investments.

People who think 3.5X average wage is what house price should be with current population and housing stock they must still believe in Santa also.

It is where the supply meets the demand. If there 1M houses for sale logic says the top 1M earners are going to set the sale price through buying not the bottom 1M.