What makes you think housing is going to become ''easily'' affordable?

borntobefree

Op - I see your point. We bought a flat in London 1987 and sold it in 1994 for £1000 less than we bought it...we doubled our mortgage and bought a 2 bed house but in a much better area. So you're are right we couldn't suddenly afford a massive detached with a swimming pool (more's the pity):rolleyes:

borntobefree

PasturesNew wrote: »

They were allowed to borrow a MAXIMUM of:

[2.5x largest salary] + [0.5x smallest salary]

But interest rates were much higher then, that's why the multiples were smaller. When interest rates are low the multiples can be higher.

m00m00

higher interest rates don't matter so much when the property was much cheaper.

something people are struggling to grasp.

I keep hearing the 'interest rates were 15%' mantra, but never an acknowledgement the property was 3 times cheaper (in many cases).

what's been 'broken' in the current greed glut, is a sensible relationship between wages and prices.

wibble68_2

m00m00 wrote: »

I keep hearing the 'interest rates were 15%' mantra, but never an acknowledgement the property was 3 times cheaper (in many cases).

It's worth mentioning that interest rates came down to 7% by Nov 92
and the housing market didn't recover until 96.

I guess the levels of unemployment and negative sentiment took 4 years to clear.

http://www.houseweb.co.uk/house/market/irfig.html

MrSafeGaz

I don't know about 'easily' affordable but more affordable than they are now. To illustrate the ridiculousness of house affordability at the moment here are a few figures for you....

In 2003 average household income was £34,197 and house price £115,181. Assuming a 10% deposit thats a £103,663 mortgage. Over 25 years @ 5.5% you would pay £636 per month for a total of £87331 in interest. That £636 is a total of 22.3% of the gross annual salary for a year.

In 2008, the average household income in £38,302 and house price £197,000. Assuming a 10% deposit thats a £177300 mortgage. Now, 22.3% of that salary would allow you to pay £712 a month. On that mortgage @ 5.5% for the term it would take you....erm, well....at 45 years the monthly payment is £887.77 and a staggering £302,000 in interest.

So as you can see, assuming the same affordability, mortgages in 2008 are impossible to have compared to 2003. Keeping term constant would mean that 34% of the gross annual average household income is taken in mortgage payments in comparison to 2003.

This doesn't include the inflation of others things associated with a house, bills etc. which make affordability even more of an issue.

Scabs

The price falls people are predicting IMHO are averages so for example Yorkshire may drop 5% and London may drop 40%, so if you live in Doncaster and see very small drops you may not believe the large reported drops that people in Mayfair see.

Its all down to what people can afford and what people are able/prepared to pay for property. If wages differ in different areas then the average wage in that area should be in theory a good indicator of house prices in that area.

The trouble is banks have been lending people many times their wage, making it difficult for the borrower to keep up the mortgage payments. This was fine before the credit crunch but now borrowing costs have gone up people are finding it hard to meet the payments. It also dosn't help that Britain is (again on average) highly indebted.

House prices are and will continue to fall IMHO. Mortgages being offered by the banks now are a great deal more expensive than a year ago so prices will go down but affordability will still be high.

I am currently renting and saving as much as possible for a large deposit to put down on a property as the interest servicing a mortgage is huge. I think a lot of people think its normal to blow 75% of their wage on their mortgage these days.

Crazy.:eek:

tomstickland

Dan: wrote: »

These days FTB set their expectations way to high. They come out of Uni, get a job with a salary of 25K and expect to be able to buy a 3-bed semi with a double garage. When they discover they can only afford a 1-bed in a less desirable area of town they complain they are priced out of the market.

Start at the bottom.

I think that this is a very lazy thing to say. The prices/earning ratio is the highest it's ever been.

Regarding falling house prices and affordability, it does help FTBers as long as they have some deposit saved. As prices fall, so does the size of the 10% deposit and the monthly payments drop in line with the amount borrowed. Higher rates push it back up a bit.