Worrying omens for the housing market

AndyGuil

grizzly1911 wrote: »

So is 3x single income common, especially FTB, as you alluded to?

I said joint. It is extremely common. FTB often buy as a couple.

Graham_Devon

wotsthat wrote: »

As a snapshot according to the CML in June 2013 the average FTB (presumably most at risk from worrying omens) income multiple was 3.33 and they were paying <20% on repayments (12% interest/ 8% capital). So whilst 5/6 wages might not be 'uncommon' it's not common enough to drag the average to that level. Someone less charitable than me might suggest you were just making things up.

http://www.cml.org.uk/cml/media/press/3620

Also mortgage holders earn somewhat more money than they did in the '70's so wouldn't necessarily have to dip into 'essential' spending - just cut down on male grooming products and the like.

It seems highly unlikely that if the biggest financial crisis ever didn't derail UK homeowners then an improving economy and the corresponding interest rate rises are going to either.

Despite all the worrying omens of the last few years people have just kept on paying their mortgages month after month, year after year.

3.3x joint income is very different to 3x single income.

AndyGuil

Not really. You are effectively buying half a house each. The ratio between that half and the salary is 3.33x the single salary. It is normal for a FTB to buy as a couple, why wouldn't they.

IveSeenTheLight

Loughton_Monkey wrote: »

Whilst very few of us want interest rates to increase, those with mortgages will tend to absorb the costs and live within income because they don't want to lose the house.

This is, of course, not easy, but oldies will all recall times when literally half net income was going into the mortgage, and rates well up into double digits.

Those (and there are many) who have not yet learned the 'easy' way that it is vital to spend far less than you earn, will learn the 'hard' way that they can live on much less (after mortgage repayments). Once rates go down, they might then find themselves actually saving money. Probably too late, but better late than never.

A key point in all of this is that this is the time to benefit from low interest rates.
Borrow now and pay down before rates increase.

No point in holding off and waiting for rates to rise, then the price might also be higher.

By waiting, your hoping for a reduction in price to compensate the loss from the low interest period.

It's a gamble I would not be holding off for.

IveSeenTheLight

Graham_Devon wrote: »

Key difference then was that many had taken loans at 3x wages, approximately.

That has changed now, with 5/6 x wages not uncommon, especially pre-2007 mortgages. Makes smaller interest rate rises harder to cope with than in the time you talk of.

Graham, must we show yet again the mortgage multiplier.
Ok then, just for clarity

http://www.lloydsbankinggroup.com/media/excel/2013/AffordabilityQ32013.xls

UK peak house price to earning ratio in the last 30 years = 5.86
UK low house price to earning ratio in the last 30 years = 3.09
UK average house price to earning ratio in the last 30 years = 4.09

Current UK average house price to earning ratio = 4.67

Now it is fair to say that house price to earnings are above average for the last 30 years and an indicator that they must reduce, however, more importantly, when you look at the affordability: -

UK peak mortgage repayments as a percentage of income ratio in the last 30 years = 65.5%
UK low mortgage repayments as a percentage of income ratio in the last 30 years = 23.6%
UK average mortgage repayments as a percentage of income ratio in the last 30 years = 23.6%

Current UK average mortgage repayments as a percentage of income ratio = 27.3%

It is therefore clear to see that affordability wise, it's very near a 30 year low.

wotsthat

Graham_Devon wrote: »

3.3x joint income is very different to 3x single income.

So what's your point?

Either someone's bought a house on their own for 3.3x their single income or a couple buys one at 3.3x their joint income.

You might not agree with it but some people go halves on houses these days.

IveSeenTheLight

wotsthat wrote: »

So what's your point?

Either someone's bought a house on their own for 3.3x their single income or a couple buys one at 3.3x their joint income.

You might not agree with it but some people go halves on houses these days.

Some people also buy half houses on their own

Graham_Devon

wotsthat wrote: »

So what's your point?

Either someone's bought a house on their own for 3.3x their single income or a couple buys one at 3.3x their joint income.

You might not agree with it but some people go halves on houses these days.

It's rather pointless trying to state anything on here anymore, isn't it?

If people don't understand that taking on a mortgage on single income at 3x income is very much different to taking mortgages on at dual incomes, theres not much that can be said to discuss this any further.

You have made the discussion pointless, by your complete unwillingness to look at the point put across. Though to be fair, this was probably your aim!

You've told me I'm making things up. You've told me I don't "like" people buying houses together. I mean, all this from the one single sentence I wrote...

wotsthat

Graham_Devon wrote: »

If people don't understand that taking on a mortgage on single income at 3x income is very much different to taking mortgages on at dual incomes, theres not much that can be said to discuss this any further.

If you're going to point to the '70's and say people were buying a house at 3 x single income but now they're buying at 3 x dual income (well you said 5/6 but we'll let it go) then you also need to acknowledge what a dual income is i.e. two wages.

You therefore can't just say there's more risk without considering the other side of the equation. There are more dual income families than the '70's (so losing one income may not be an unrecoverable disaster) and people are richer so there's much more discretionary spending to cut before hitting the essentials.

For someone that tends to see the negative I don't know why you put on the rosy tints whenever the '70'S are mentioned.

AndyGuil

Dual income is a lot less risky than single income for a mortgage.