Debate House Prices


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The 3.5 x Salary ideal - ever realistic again?

I see alot of posts from people waiting for houses to be affordable again before buying referring to the 3.5 x salary mortgage ideal but is this really realistic? I'm referring really to the south east where I live. My parents sold their 3 bed semi (which was their first purchase in the 1960's) for 112k in 1997 at the bottom of the last housing cycle. Even that is more than 3.5 times today's average salary of approx 25k with 10% deposit. At the top of the last housing cycle in 1988 those houses had been selling around the 130k mark. With interest rates consistently lower than the 70's and 80's are we ever likely to see a return to this kind of affordability even after the current correction?
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Comments

  • 3under3 wrote: »
    I see alot of posts from people waiting for houses to be affordable again before buying referring to the 3.5 x salary mortgage ideal but is this really realistic? I'm referring really to the south east where I live. My parents sold their 3 bed semi (which was their first purchase in the 1960's) for 112k in 1997 at the bottom of the last housing cycle. Even that is more than 3.5 times today's average salary of approx 25k with 10% deposit. At the top of the last housing cycle in 1988 those houses had been selling around the 130k mark. With interest rates consistently lower than the 70's and 80's are we ever likely to see a return to this kind of affordability even after the current correction?

    Highly unlikely, IMO.

    Given the British love affair with houses and the fact that, long term at least, they have always shown a profit, I think the market would start to take off again before we return to those sort of figures.

    That said, I don't believe that it will be any time soon.
  • slipthru
    slipthru Posts: 611 Forumite
    Part of the Furniture 500 Posts
    If the banks will only lend 3.5x salary then i can't see how house prices can stay way overpriced.
    In Progress!!!
  • brit1234
    brit1234 Posts: 5,385 Forumite
    slipthru wrote: »
    If the banks will only lend 3.5x salary then i can't see how house prices can stay way overpriced.

    If you look on lenders mortgage calculators some are now lending far less than 3.5 times salary, Lloyds for one. Prices have no choice to but come down.
    :exclamatiScams - Shared Equity, Shared Ownership, Newbuy, Firstbuy and Help to Buy.

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  • Paul_N_4
    Paul_N_4 Posts: 344 Forumite
    If the cost of living keeps heading the direction it is, that will probably be the most you can afford to pay anyway. Banks only started lending higher amounts (x4, x5) because it has recently been affordable to do so, thanks to cheap living and cheap credit.

    Multiples of income are based on what people can afford, and are likely to afford over the short to medium term of the mortgage. If the cost of living eats more and more into your pay check, you can afford less for the mortgage, ultimately meaning smaller mortgage multiples given.
  • guyrulius
    guyrulius Posts: 54 Forumite
    Banks will return to 3.5 x salary because the shareholders will demand it. Shareholders are not going to put up with being asked for funds to cover rights issues in order to cover up past poor trading decisions.

    A return to cautious lending that protects shareholders, balance sheets and the mortgagee will be the order of the day.

    The banks are going to end up repossessing a lot of property over the next three years and the last thing they want to be is landlords.

    That is until a new generation come along who've never had to learn the lessons of a recession and the process will begin again.
  • pollyanna24
    pollyanna24 Posts: 4,378 Forumite
    Part of the Furniture 1,000 Posts Name Dropper
    Does this mean x3.5 one person's salary? Not sure if this will ever happen. I know the ideal is for wifey to stay at home and not have to work, but it's not the way of the world these days.

    For the one bed flats maybe for one person, maybe it should be x3.5 of one person's salary.
    Pink Sproglettes born 2008 and 2010
    Mortgages (End 2017) - £180,235.03
    (End 2021) - £131,215.25 DID IT!!!
    (End 2022) - Target £116,213.81
  • I bought my first home 18 months ago and live in hertfordshire/close to london.. our mortgage is 3x our joint income

    It is possible!
  • guyrulius
    guyrulius Posts: 54 Forumite
    And what happens when wifey goes off to pop out ankle biters for two or three years?

    The amount of credit available is defined by how healthy the bank's p&l sheet is looking.

    House prices are a matter of opinion, debt is real.
  • dannyboycey
    dannyboycey Posts: 1,060 Forumite
    Does this mean x3.5 one person's salary?

    3.5 x joint, or slightly higher for an individual. Yes, it's completely realistic, as once you can only borrow 3.5, prices will fall in line as a result of affordability. In fact, you'll struggle to get much more than this now.
  • Snaggles
    Snaggles Posts: 19,503 Forumite
    There are only two high street mortgage lenders who are still using income multiples as a deciding factor in their mortgage assessments. And even for those, affordability by far the more important factor.
    "I wasn't wrong, I just wasn't right enough."
    :smileyhea
    9780007258925
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