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

wherediditallgothen

PasturesNew wrote: »

The average house price in Padstow (North Cornwall) are now 18x local average wages

What actually happens is nobody moves there, nobody starts a business there, next local companies can't get new staff because nobody can afford to live there.... so they close. Then you end up with another ghost town of 2nd homes.... and the last 4 council houses still being rented.

Sad state of affairs imho. I love Cornwall, and could quite understand buying a 2nd home there (obviously I'd need quite deeper pockets than I presently have!), but the effect this has on local people and businesses is quite sad.

Exocet

PasturesNew wrote: »

They did...

I stand, or rather sit, corrected.

PasturesNew

ukcarper wrote: »

Looked at studio flat in 1972

The first studio I remember seeing was a brand new Barratt studio flat in 1980/1981. I remember seeing the cream sofa bed that came with it.

I also remember it cost £20k..... and I was earning under £6k at the time and as a single female, without a deposit either, it was an impossible dream.

Exocet

I wonder who coined the term 'studio' rather than say poky or cramped. Genius. Mind you we all know now. Some of these show places are brilliant. The furniture is like dolls house, smaller size than normal, but unless you lay in the bed or sit on the sofa you might not notice.

Bijou. !!!!!!?

ukcarper

PasturesNew wrote: »

The first studio I remember seeing was a brand new Barratt studio flat in 1980/1981. I remember seeing the cream sofa bed that came with it.

I also remember it cost £20k..... and I was earning under £6k at the time and as a single female, without a deposit either, it was an impossible dream.

The one I looked at in 1972 did have a sliding door across the alcove the bed went in, it wasn’t a new build.

One of the problems back then was that you needed a bigger deposit to buy a pre war house than you did for a post war house.

iB1

Exocet wrote: »

I wonder who coined the term 'studio' rather than say poky or cramped. Genius. Mind you we all know now. Some of these show places are brilliant. The furniture is like dolls house, smaller size than normal, but unless you lay in the bed or sit on the sofa you might not notice.

Bijou. !!!!!!?

I often read a discarded Evening Standard on the way home from work. Wednesday is the "Homes and Property" section in the middle.

The adverts are chock full of new build places with beautiful airbrushed models swinging their legs happily over their tiny sofas with a lovely view of a train line and Lidl.

One question - what the hell are "Manhattan-style apartments"? Are these the new studio flats, that were the new bedsits? I don't even know what that's supposed to mean???

HAMISH_MCTAVISH

PasturesNew wrote: »

The average house price in Padstow (North Cornwall) are now 18x local average wages

What actually happens is nobody moves there, nobody starts a business there, next local companies can't get new staff because nobody can afford to live there.... so they close. Then you end up with another ghost town of 2nd homes.... and the last 4 council houses still being rented.

Rick Stein seems to do OK.....

Out,_Vile_Jelly

iB1 wrote: »

I often read a discarded Evening Standard on the way home from work. Wednesday is the "Homes and Property" section in the middle.

The adverts are chock full of new build places with beautiful airbrushed models swinging their legs happily over their tiny sofas with a lovely view of a train line and Lidl.

One question - what the hell are "Manhattan-style apartments"? Are these the new studio flats, that were the new bedsits? I don't even know what that's supposed to mean???

Yes, the property section is always good for a laugh. Renaissance, Lewisham is currently my favourite optimistically named block of shoeboxes.

Chris2685

PasturesNew wrote: »

That was the programme where the presenter bloke drove her past a bunch of them wasn't it ... possibly in a camper van/VW?

I think she even has one in my town.

Yeah, seems to ring a bell.

Generali

Bullfighter wrote: »

So could house prices be maintained at 40x or 100x average salary? If not, why not if there is 'nothing important' about this ratio?

House prices are mostly a function of salary (means to repay), savings (initial deposit) and mortgage price & availability (credit).

I know you understand all this Generali, so what am I missing?

The 3x to 4x salary is a rule of thumb that is based on historical interest rates (3%-8%) and provides a range of interest payments that won't exceed the ability of the average mortgagee to repay on the salary in question.

Sure, given incredibly low interest rates, that ratio will skew against the salary multiple.

Banks aren't offering 1.5% fixed mortgage rates today to new customers, because they are aware of the significant likelihood that their borrowing rates will increase at some time in the future.

If we include joint earnings into the multiple to increase the ratio then we are effectively assuming that the couple never have children.

Sorry, I missed this earlier and it seems to be directed at me.

House prices are unlikely to remain for long at 40x or 100x average salaries but it would be mathematically possible I guess given a very unequal skew of incomes. For example, what do you think the average house price:income ratio was in the C16th in England? AIUI, many had very little and a few had most of the assets and income. According to these guys (link) house prices in Sydney are 9x salaries and in Shanghai 15x salaries no average.

3x or 4x joint or single salary (or even less) are average mortgages that have been handed out. There is no good reason I can see why the average house should equal 3.5x the average salary. The price of the average house will be a function of the supply and demand for the average house. Those in turn will be functions of things like the cost of renting, availability of credit, ease of obtaining planning permission, household formation etc.... Lots of people have in the past and will continue to buy a series of properties over the course of their lives to suit their needs.

People taking out mortgages on joint salaries doesn't preclude them from having kids. It will often preclude them from having as much of a hand in their upbringing as they would like but that's something for another thread perhaps.

Don't get me wrong, I think house prices in the UK are needlessly high, that the high price of housing extracts a high social and macro economic cost (ultimately very high long-term UK land prices has reduced GDP IMO) and I am what I describe as a 'secular bear', that is that demographic and other factors will push UK house prices lower.

PS Banks use a product called an interest rate swap to hedge against moves in interest rates when they offer fixed rates. As long as their counterparty remains solvent, if interest rates rise or fall matters not one jot in terms of the profitability of fixed rate mortgages and that's how banks like it. Reduce risk, increase margins is the mantra.