wages to house prices ratios

tali

with headline figures of "avearge house hits 200k" ! is wages to house prices ratios the real measure of house afforability - so how afforadable /unafforadable is uk property historically ? how does today compare with 25-30 or 50 years ago ? and how does it compare with other countries?
thanks

Amitoocautious

Well a man working in a factory with a wife at home could once afford a 3bed semi. Now - we earn almost 90k a year together and would struggle! One thing i often ask the older generation when they go on about how much their house is worth is "can you afford to buy it now" Its normally No!

abaxas

People would easily afford mortgages at 7-8% IRS on the old 3.5 multiples, however people can now afford 5-6x at lower IRS, hence houses are just as 'affordable'.

The issue comes when the people who bought at 5.25% IR with a 5x mortgage try to pay they mortgages at 7-8% IRs. Basically they're ducked so get repossessed.

Debt has to be repayed, a loan is only as good as being able to make the repayments or by being able to refinance. A loan is only 'affordable' if you can do this throughout the whole payment period. Who knows what will happen in the next 25 years, inflation will eat away at the debt only if you can actually pay it back.

zag2me

Don't forget most people buy a house with 2 people, not on their own.

tali

where i live a typical 3 bed terrace is 7.6x salary

Pobby

The situation is beyond a joke.This is the economics of the mad house.Let`s say that when many of us were struggling with double figure interest who would have thought that rates could come down as low as they have.All i am saying is maybe in 10 years time rates could hit double figures again,I really don`t know.

The ratios being offered now are irresponsible imho and if the banks come a cropper it will be their fault.When in the 70`s we bought our first house we borrowed about 4 times joint salary.However I was on the first rung of a career and indeed my income went up sharply.Plus there was run away inflation so my debt was being wafted away.Me,I would be very cautious right now.

talksalot81

If you correct house prices both for Interest rates and also for real earnings, you will get a solid measure of affordability. Surprisingly you will find that the UK as a whole is nowhere near peak (I am a bear on this matter, so it doesnt help my arguements to admit this). However, in some places, this is not actually the case.

If you care to do this for yourself, find the average house prices through the years and calculate the monthly repayments at each interval (obviously needing the IR to calculate). Then calculate this as a function of average earnings through the same period.

matty2767

Amitoocautious wrote:

Well a man working in a factory with a wife at home could once afford a 3bed semi. Now - we earn almost 90k a year together and would struggle! One thing i often ask the older generation when they go on about how much their house is worth is "can you afford to buy it now" Its normally No!

we bought a new build house last christmas for £213k and stretched ourselves to the max with the mortgage. the house builder is now selling exactly the same house style for £255k. so we could no longer afford to buy the house we already own in 1 yr.

Guy_Montag

talksalot81 wrote:

If you correct house prices both for Interest rates and also for real earnings, you will get a solid measure of affordability. Surprisingly you will find that the UK as a whole is nowhere near peak (I am a bear on this matter, so it doesnt help my arguements to admit this). However, in some places, this is not actually the case.

If you care to do this for yourself, find the average house prices through the years and calculate the monthly repayments at each interval (obviously needing the IR to calculate). Then calculate this as a function of average earnings through the same period.

Problem is IRs can rise much faster than wages.

epz_2

its not the cost of the average house that matters but the interst rates and repayment term that affect the affordability of houses, low interest rates and house prices go up because people are prepaired to pay a certain % of wages to live.


obviously there is a limit to how high a % of peoples wages can be paid to a morgage as otherthings like tax, food etc are needed and wages are kept prettymuch static by external forces (read kids in china working for 1p a day etc). and then we have pretty much seen the lower boundry of the other two vairiables as people have taken out interst only morgages( term is infiante) and the lowest interest rates for years on the rise.

its interesting to see hoe much of the market is being driven by people who have equity in there home already funding development and btl.

i recently looked at a £100k property in need of work in an area which was swarming with btl'ers now the rental cealing in the area for that type of property is about £500 so given a 5.6% ish morgage even interest only it would be hard to pay the morgage and keep up repairs for that kind of outlay let alone if rates go up or the property goes vacent for a few months.

the big problem as i see it is a lot of cash rich older people (read kids moved out and good jobs but nothing to speand the cash on) got burned by their pensions, then watched the dot bomb and figured you are always safe with houses and are pumping cash into a market that was previously limited by affordability.

but enough speculation, as part of a generation whos had to pay massive ammounts to get educated, then found all the jobs are getting shipped off to the 3rd world cause its cheaper and globalisation is good cause my tv is £5 cheaper and taxed more with lower benifits and no job security all i can say to the baby boomers who think i am going to subsidies 40 years of their retirment through tax so i can retire at 75 is i hope the market goes the way all bubles go and takes you down with it, no simpathy.

jyonda

epz wrote:

as part of a generation whos had to pay massive ammounts to get educated, then found all the jobs are getting shipped off to the 3rd world cause its cheaper and globalisation is good cause my tv is £5 cheaper and taxed more with lower benifits and no job security all i can say to the baby boomers who think i am going to subsidies 40 years of their retirment through tax so i can retire at 75 is i hope the market goes the way all bubles go and takes you down with it, no simpathy.

Amen to that