Moneyweek: Why this housing crash could be worse than the 1990s

HAMISH_MCTAVISH

the_ash_and_the_oak wrote: »

A fair argument. The only question I have about this is - is that figure of net income across all mortgage holders? or just FTBs?

Off the top of my head, I don't remember.

But the method for calculating it should be the same then and now, so it will be a fair comparison as to the general state of peoples ability to pay.

What I do know is that the average loan for actual FTB's that have bought a house today is right around 3 times income, versus 3.5 times income at peak. And for 2TB's it's a lot less.

But then actual house buyers average income is a lot higher than the average income of all people, as the lowest paid 30% of society tend not to buy houses..... This has however improved from 1964 when it was the lowest paid 52% of people who did not buy houses.;)

the_ash_and_the_oak

HAMISH_MCTAVISH wrote: »

Off the top of my head, I don't remember.

But the method for calculating it should be the same then and now, so it will be a fair comparison as to the general state of peoples ability to pay.

What I do know is that the average loan for actual FTB's that have bought a house today is right around 3 times income, versus 3.5 times income at peak. And for 2TB's it's a lot less.

But then actual house buyers average income is a lot higher than the average income of all people, as the lowest paid 30% of society tend not to buy houses..... This has however improved from 1964 when it was the lowest paid 52% of people who did not buy houses.;)

Fair points all - a couple of things that are quite interesting though.

1. I agree about comparing like with like - the only prob for me w this one is that overall stats don't tell us much about affordability of houses currently (my parents last bought in 1984 and have a nominal mortgage now with a tiny % going towards salary - but this doesn't tell us much about that houses affordability for a new buyer) - so I'd prob be more interested in ave % of FTBs salary then and now rather than overall

1a. Would kind of expect ave % of ftbs salary to have come down significantly since peak of market as lower quality borrowers excluded and transactions reduced

2. I didn't know average loan for ftbs was just 3x salary. thats quite surprising!

3. I agree about the point of ave salary of all society includes non-buyers, and that it might be better to use ave salary of the buying sector of society and exclude the low-income non-potential buyers (but how?). However as owner occupancy stats have risen these two figures become closer together (more relevant now than in 1964 as your stats show). The higher owner-occupancy stats rise the more relevant the overall ave salary figures become imo.

3a. prob something here about is there a widening gulf between the buying section of society and the non. If so then ave overall salary less relevant, if around the same as in the past or not widening, then can compare overall ave salary now with in past w reasonable accuracy imo

treliac

I've just checked on Nethouseprices and the FTB flat I bought as a young single girl had increased in price 6 times to Oct 2008. In the same period my salary increased 2.5 times.

There's no way I would ever have been able to buy in recent years and that's why I want house prices to come down. I think it's in the best interests of the majority.

No more self cert will mean no more getting into house buying for vast numbers at existing prices - even allowing for falls so far and for those who can afford or have wealthy parents to help out.

HAMISH_MCTAVISH

the_ash_and_the_oak wrote: »

Fair points all - a couple of things that are quite interesting though.

1. I agree about comparing like with like - the only prob for me w this one is that overall stats don't tell us much about affordability of houses currently (my parents last bought in 1984 and have a nominal mortgage now with a tiny % going towards salary - but this doesn't tell us much about that houses affordability for a new buyer) - so I'd prob be more interested in ave % of FTBs salary then and now rather than overall

Well, looking at the facts, I rather suspect it does. It's easy enough to figure out. On a national basis, the average property costs around £160K, but typical FTB properties cost a lot less. The average FTB mortgage is around 3 times income. The average income of actual FTB's (not wannabee FTB's) is north of 30K, and the average FTB deposit size is 25%.

Based on that, a property of 120K (seems about right for FTB's, and it may well be as low as 90K) would have a 30K deposit, and mortgage of 90K.

A 90K mortgage at 6% on a full repayment mortgage would be £586 per month. (and with a 25% deposit, you can get much lower than 6% today)

Take home pay for 30K per year is £1885 per month.

The mortgage payment is therefore 31% of net after tax income, at an unrealistically high 6% rate on a full repayment mortgage.

1a. Would kind of expect ave % of ftbs salary to have come down significantly since peak of market as lower quality borrowers excluded and transactions reduced

It may well have done. The average at peak was around 40%. The long term average is 37%. Todays average is 30%.

2. I didn't know average loan for ftbs was just 3x salary. thats quite surprising!

Surprised me too. But it is.

3. I agree about the point of ave salary of all society includes non-buyers, and that it might be better to use ave salary of the buying sector of society and exclude the low-income non-potential buyers (but how?). However as owner occupancy stats have risen these two figures become closer together (more relevant now than in 1964 as your stats show). The higher owner-occupancy stats rise the more relevant the overall ave salary figures become imo.

Don't know about more relevant.... But certainly less of a spread.

Although I rather suspect that the percentage of owner occupiers has peaked. It was 70%, and has now fallen back by a couple of points.

Realistically, the last few percent of ownership was only achieved by extending lending to low income and other sub prime borrowers, and that won't be coming back any time soon.

However growing population more than counters the lower (and increasingly wealthier) percentages of the population actually owning. The numbers of owners increase, whilst the percentage of the population owning decreases.

3a. prob something here about is there a widening gulf between the buying section of society and the non. If so then ave overall salary less relevant, if around the same as in the past or not widening, then can compare overall ave salary now with in past w reasonable accuracy imo

The gulf is widening, for sure. But this is not unsustainable.

In 1900, 10% of the population owned 90% of the houses in Britain.

In 1964, only 48% of houses were owner occupied.

In 2005, around 70% of houses were in owner occupation, and today it's back to around 68%...... But with a million more people than were here in 2005, so the actual number of owner occupiers has increased.

I rather suspect ownership percentages have now peaked.... But ownership numbers will continue to increase, meaning houses will only be afforded by an ever wealthier percentage of society.

the_ash_and_the_oak

HAMISH_MCTAVISH wrote: »

Well, looking at the facts, I rather suspect it does. It's easy enough to figure out. On a national basis, the average property costs around £160K, but typical FTB properties cost a lot less. The average FTB mortgage is around 3 times income. The average income of actual FTB's (not wannabee FTB's) is north of 30K, and the average FTB deposit size is 25%.

Thats pretty interesting that the average deposit size is as high as 25%. I didn't know that. I suppose while transaction figures are so low its not surprising that the average ftb deposit has increased (it obviously has to be higher than 10 given that I can't find any lenders that will lend with less than 10% deposit. What was the ave deposit in.. say 2003-2007?

The mortgage payment is therefore 31% of net after tax income, at an unrealistically high 6% rate on a full repayment mortgage.

I wouldn't say 6% was unrealistically high for those borrowing with only 10% deposits - I guess for the bulk of FTBs with 25% deposits they would be borrowing at less than 6% tho yes

I rather suspect ownership percentages have now peaked.... But ownership numbers will continue to increase, meaning houses will only be afforded by an ever wealthier percentage of society.

I agree w your point about owner occupancy stats rising. Also agree it may have peaked - there is kind of a ceiling on this imo and it may have been reached. For me rising prices are synonymous w rising oo stats, I think the opposite is true also. Where I don't agree is that rising population stats increasing in number while decreasing in % will have upward effect on prices - given that this implies a still maller % of future homes will be owner-occupied

fc123

treliac wrote: »

I've just checked on Nethouseprices and the FTB flat I bought as a young single girl had increased in price 6 times to Oct 2008. In the same period my salary increased 2.5 times.

There's no way I would ever have been able to buy in recent years and that's why I want house prices to come down. I think it's in the best interests of the majority.

No more self cert will mean no more getting into house buying for vast numbers at existing prices - even allowing for falls so far and for those who can afford or have wealthy parents to help out.

I just had a look at a few places people I knew and ourselves bought years back and compared to salary at that time.

Our first house costs about 200k nowadays...so guessing deposit 20k and salary needed of 60k? Sounds about right for a couple on 30k each.
If you wanted better area, then you would need to pay 250k now and earn more...same dilemma as back then.
Sisters place costs approx 115k now and her job then now pays about 35k now...perhaps more nowadays as was City based.

I hate to say it, and I agree HP are insane in some places (but then they always were..I could never work out who could afford a 3 bed town house in Fulham even 25 years ago) but low IR and the lower prices for stuff are feeding higher house prices.

Pobby

This is my worry. When IRs were around 8% there was plenty of room for fine tinkering by moving IRs up or down a bit. My mortgage in about 1980 was for about £14k. I remember the low being about £120 per month with the high at somewhere like £160 or something like that. A bit of a slight inconvenience but no more than that. Certainly no cause to struggle.

I was pretty concerned that when the base rate was 5% there was less room to make the changes. Now where can they go now that IRs are at .05%?

the_ash_and_the_oak

they could reduce them by 50% , down to 0.25

HAMISH_MCTAVISH

the_ash_and_the_oak wrote: »

they could reduce them by 50% , down to 0.25

They could reduce them by more than that....;)

Interest rates are merely a tool to control liquidity within the market and tackle inflation.

People assume they have to be positive.

They don't.

Negative interest rates, where you pay the bank to deposit cash, are perfectly possible.

treliac

fc123 wrote: »

Our first house costs about 200k nowadays...so guessing deposit 20k and salary needed of 60k? Sounds about right for a couple on 30k each.

Is 60k an average joint salary for a young couple? I would think it's a fair bit lower.

Also, when Mr t and I married and bought our first house, only 1 x my salary was taken into account. Translate that into your suggested figures and the couple might only qualify for a loan of say 120k.

The risk attached to the female's salary was that she was likely to start a family and want time out of the workplace / to reduce to part-time working. I'm very glad we had that leeway or we maybe wouldn't have survived.