Worrying omens for the housing market

Graham_Devon

AndyGuil wrote: »

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

How?

Maybe you could explain?

HAMISH_MCTAVISH

Graham_Devon wrote: »

How?

Maybe you could explain?

If I am the only breadwinner in my household and I lose my job then my income drops to zero until I can find another job.

If I am part of a couple each earning similar amounts in my household and I lose my job then I still have 50% of household income until I can find another one.

Graham_Devon

HAMISH_MCTAVISH wrote: »

If I am the only breadwinner in my household and I lose my job then my income drops to zero until I can find another job.

If I am part of a couple each earning similar amounts in my household and I lose my job then I still have 50% of household income until I can find another one.

Firstly, you have simply assumed that a mortgage taken in 1970 on single income meant the other person didn't work. Need to remember that often parters were on the mortgage, but at only 1x income to cover this sort of job loss eventuality.

Secondly, a dual income mortgage will be higher. In many cases, one income won't be enough to service it.

And this is the problem - it's all assumptions. Each household will differ. Having a dual income mortgage and losing one job simply represents a different problem to the main breadwinner in 1970 losing their job.

In 1970, the mortgage would at least have been smaller and would have at least allowed for a second income to service it. This is less likely to be the case today, with dual income required to service it.

HAMISH_MCTAVISH

Graham_Devon wrote: »

........

You asked why a single income mortgage was riskier than a dual income mortgage.

I explained it.

Did you want to actually address that point?

Jason74

HAMISH_MCTAVISH wrote: »

If I am the only breadwinner in my household and I lose my job then my income drops to zero until I can find another job.

If I am part of a couple each earning similar amounts in my household and I lose my job then I still have 50% of household income until I can find another one.

Surely it all depends on individual circumstances. If two members of a household are working and on similar salaries, then yes, a Mortgage based on one salary is inherently "safer" than one based on both. If either partner loses their job, then there is still enough income to service the loan, as only one income is needed to service the loan. The same couple would have more of a problem if their mortgage needed both incomes to service it.

However, a dual income couple with similar salaries would have less of a problem if one job was lost than a single income household would if that income was lost, even if their mortgage was double the size of the single earner household. It stands to reason that losing half of your household income is less of a problem than losing all of it, and the couple losing one of their two incomes is in a much better position to be able to offer a meaningful payment to the mortgage lender than the couple now looking at benefits as their only income.

And all of that is just one part of the equation. That doesn't take into account career progression after taking out the Mortgage (if there are two careers, there are two "chances" of progression), debt levels outside of the mortgage etc. etc.

No two circumstances are the same, so the dynamics are much more complex than simply saying that a single income mortgage is inherently safer than a larger dual income one (although that will undoubtedly be true in some cases). Indeed, the more pertinent issue for me is the way that house prices (and mortgage sizes, especially for ftb) now appear to be rising to take up the "spare" affordability from lower interest rates.

Loughton_Monkey

Jason74 wrote: »

.....No two circumstances are the same, so the dynamics are much more complex than simply saying that a single income mortgage is inherently safer than a larger dual income one (although that will undoubtedly be true in some cases). Indeed, the more pertinent issue for me is the way that house prices (and mortgage sizes, especially for ftb) now appear to be rising to take up the "spare" affordability from lower interest rates.

This sums it up to me. Complex. Dynamic.....

Historic figures on house prices v income multipliers are really meaningless, because no-one really knows what 'income' is being used. As long as I remember of the 70's and even into the 80's, then typically mortgages would be granted on something like 3XMain breadwinner +1XPartner. This could be a multiple (of total salary) between 2X and 3X joint. Now it tends to be 3X joint as a standard. But one assumes a couple each earning the same get "put down" in the stats as 3X one salary, whereas they are borrowing 6X. In the 'old days' it couldn't really be more than 4X [average of 3X one and 1X the other].

This is all irrelevant, though, to a couple trying to borrow when only one person earns a salary.

I can never recall a time (in the 70's/80's) when people didn't just (for their first house) simply find what they could borrow, and then go out and buy within whatever budget that gave them. Outside London, that's still possible for most 'decent' earners.

Except now (for reasons I cannot explain) people tend to 'eye up' the sort of house they would 'like', and then find it's out of their range. Then comes the whinging. And all the idiotic analytics about what other generations could 'afford' in chalk and cheese situations.

Thankfully, I think there are still quite a few 'sensible' FTB's who do exactly as I have outlined, and I would predict these are the ones who will do rather better in life in all aspects of finance.

Then we have the constituency of those who do not 'think' about buying, or 'think and reject' buying, but instead go out into the world and rent the sort of house they would 'like'. Probably have children as well. And then whinge about not being able to afford a house. The minute such life decisions are made, you really don't need to be Einstein to predict that such people will never be able to afford to buy.

wotsthat

Graham_Devon wrote: »

And this is the problem - it's all assumptions. Each household will differ. Having a dual income mortgage and losing one job simply represents a different problem to the main breadwinner in 1970 losing their job.

Throw in some anecdotal then to go with your flawed assumptions about how cheap and easy it was to buy a house in the '70's then.

People were just willing to commit more of their income to buying a house (ask your parents). The Graham Devons of the day will have naysaying pointing out that houses were too expensive and renting was cheaper - this message was easier to get across then. Fast forward a few decades and rather than commending them for ignoring the naysayers it's implied they were lucky rather than astute.