London prices are not too hot not too cold

cells

Lots of talk about London being far too expensive and overpriced and a bubble but imo London is not that unaffordable with the average terrace costing 6.5x the average full time working couples median wage

London
Median full time employed male wage £38,741
Median full time employed female wage £31,800
Median full time employed couple wage £70,541
Average terrace price £455,911 (Oct 2015)
The average terrace is 6.45 x the average median couples wage

cells

And this does not even factor in the reality on the ground that renters tend to rent in inner London (eg hackney is ~80% renters and ~20% owners) who are young and live more densely in rented homes. Whereas buyers tend to buy in outer London where ownership is higher.

Looking at the outer boroughs prices are even more affordable

Harrow 5.5 x joint income
Enfield 4.9 x joint income
Dagenham 4.0 x joint income
Croydon 4.4 x joint income
Etc

cells

Looking back historic prices were too cheap

2005 prices were ~4.35 x median couple FT wage
2000 prices were ~3.40 x median couple FT wage
1997 prices were ~2.30 x median couple FT wage

Unfortunately I dont have average wage data for before 1997 but if we went to 1995 the house price to wage multiple would be even lower than the already very cheap 2.3 x wages in 1997

So the conclusion really is that prices in London were far too cheap in the 1990s

Generali

That's take home of £29,431.08 and £24,711 respectively or £54,142.08. So 10 months net income is required for a 10% deposit. That means borrowing £401,768.92.

That would mean spending £28,920 a year on mortgage repayments according to the Halifax mortgage calculator which is fine assuming that the couple don't face unemployment and don't want kids.

The problem comes in that, assuming each are repaying student loans and have no other financial commitments, the Halifax will only lend them £317,000. I suspect that this puts our couple very much into sub prime territory and so facing some pretty funky interest rates.

10/10 for trying to show London prices are affordable. They aren't to most Londoners.

Mistermeaner

I would say a median couple in a densely populated area like London should expect half a terrace. A full terrace would be affordable to 2 median couples and most terraces have 2 bedrooms I think.

Plus that opens up other avenues of 'exploration'

Or they could just get better job. No way would I work in London for 30k - there's loads of 30k jobs in northern hell holes where terraces cost 100k.

cells

Generali wrote: »

That's take home of £29,431.08 and £24,711 respectively or £54,142.08. So 10 months net income is required for a 10% deposit. That means borrowing £401,768.92.

That would mean spending £28,920 a year on mortgage repayments according to the Halifax mortgage calculator which is fine assuming that the couple don't face unemployment and don't want kids.

The problem comes in that, assuming each are repaying student loans and have no other financial commitments, the Halifax will only lend them £317,000. I suspect that this puts our couple very much into sub prime territory and so facing some pretty funky interest rates.

10/10 for trying to show London prices are affordable. They aren't to most Londoners.

I did not say it was cheap (like it was in 1997-200) but that it is not absurd as some like to think it is.

why must it be just 10% down, lots of people can put more down.

Also did you miss my post about having to differentiate between inner London and outer London? Inner London is renters outer London is owners and outer London is more affordable. eg of the four outer London boroughs I looked up the average terrace price is £331,000 put 20% down and borrow the £265k and you are looking at a repayment mortgage over 30 years of close to £1,000 vs a take home pay of ~£4,500 pm according to your post

That is quite affordable. As for the risk of losing your job. Well you can think up lot of negatives to make things impossible like crahsy does to justify why stoke is unaffordable at 1x joint income. There is also the upside risk of getting better paid work and the fact that you are paying not just the interest of ~£700 per month but also paying off ~£300 per month of the capital

cells

a huge 24% of London is social housing and their wages should be ignored and a median-not-in-social-housing-wage should be used and that figure would be higher making property even more affordable than when diluting the median wage with 24% social housing tenant wages

mwpt

cells wrote: »

I did not say it was cheap (like it was in 1997-200) but that it is not absurd as some like to think it is.

You mean like RICs?

But I agree. If you are prepared to move to a generally mundane area, far from a train or tube station, there are 2 or 3 bed houses available that may qualify as affordable. It's just that people see these prices and balk I guess, considering what you're getting for an awful lot of debt. I just put in Morden (not my area) station and radius of 3 miles, for up to £375k.

http://www.rightmove.co.uk/property-for-sale/map.html?locationIdentifier=STATION%5E6353&insId=2&maxPrice=375000&minBedrooms=2&displayPropertyType=houses&oldDisplayPropertyType=houses&viewType=GRID&numberOfPropertiesPerPage=48&radius=3.0

(I think you need to copy and paste the link to a new browser )

Yes, there are options there but you get a lot less value for your money than last year, or the year before, or ... you get the picture. Maybe that's still cheap, I don't know, it certainly doesn't feel that way to me.

cells

mwpt wrote: »

You mean like RICs?

But I agree. If you are prepared to move to a generally mundane area, far from a train or tube station, there are 2 or 3 bed houses available that may qualify as affordable. It's just that people see these prices and balk I guess, considering what you're getting for an awful lot of debt. I just put in Morden (not my area) station and radius of 3 miles, for up to £375k.

http://www.rightmove.co.uk/property-for-sale/map.html?locationIdentifier=STATION%5E6353&insId=2&maxPrice=375000&minBedrooms=2&displayPropertyType=houses&oldDisplayPropertyType=houses&viewType=GRID&numberOfPropertiesPerPage=48&radius=3.0

(I think you need to copy and paste the link to a new browser)

Yes, there are options there but you get a lot less value for your money than last year, or the year before, or ... you get the picture. Maybe that's still cheap, I don't know, it certainly doesn't feel that way to me.

The problem is we are all biased because we have an inbuilt bias to think that the price of yesteryear was normal.

Using Gen take home pay we see that in outer London people will pay 20-30% of take home on a repayment mortgage. That does not seem that expensive

Also we should actually be using a higher wage figure as lots of social tenants are diluting the London median wage and this is for the average terrace property not the lowest and worst ones


I think London is now expensive, but not overpriced.
5 years ago London was 4.50 x joint median income (less for outer London more for inner) and that was good value imo now at 6.50 x joint median income its not cheap but nor is it a bubble.

cells

Most recent land registry prices

Outer London is ~5.5 x joint FT median income
Inner London is ~7.5 x joint FT median income

Generali

cells wrote: »

I did not say it was cheap (like it was in 1997-200) but that it is not absurd as some like to think it is.

why must it be just 10% down, lots of people can put more down.

Also did you miss my post about having to differentiate between inner London and outer London? Inner London is renters outer London is owners and outer London is more affordable. eg of the four outer London boroughs I looked up the average terrace price is £331,000 put 20% down and borrow the £265k and you are looking at a repayment mortgage over 30 years of close to £1,000 vs a take home pay of ~£4,500 pm according to your post

That is quite affordable. As for the risk of losing your job. Well you can think up lot of negatives to make things impossible like crahsy does to justify why stoke is unaffordable at 1x joint income. There is also the upside risk of getting better paid work and the fact that you are paying not just the interest of ~£700 per month but also paying off ~£300 per month of the capital

It's not so much the risk of losing a job per se it's that you can just about afford to service a mortgage on the average home if two people are earning a solid income (so no babies, sickness or unemployment) and interest rate are at record lows.

Where are our mystery couple going to get £64,000 from as a deposit? Let's say that they rent a 1 bed flat in Lambeth. That doesn't seem unreasonable. That's £373/week according to these guys:

http://www.londonpropertywatch.co.uk/average_rental_prices.html

so that eats up £20,000 a year. Add in £45/wk for travel (weekly zone 1-4 pass), £100/month in student loan repayments each and you've got another £7,000 so £27,000 a year. So before they've eaten anything, bought clothes or heated the 1 bed flat we have them in they're down to about £28,000 in disposable income. Let's say that they are an abstemious pair and have no internet, no car and go to the pub once a week and have 2 pints of beer each. Spend £50 a week on groceries, don't smoke, never take a vacation, have no hobbies, don't go to the gym, play sport or have a mobile phone. Don't have a TV, don't heat the flat and sit in the dark they are now down to having less than £25,000 to save.

As they are putting down a 20% deposit they will also need to save up the SDLT which is £6,500. So our wholly unrealistic average couple need to live like monks for 3 years in order to buy a terraced house in some crap hole in outer London.

Hmmm.