The New Multiple Will Be 4.5 Times Salary....

[HAMISH_MCTAVISH]

I'M BORED!!!!!!!! (night shift on-call/crisis-call Ops Mgr this month), and can't find a good, thoughtful, interesting HPC argument.

HELP!!!!!!!

So heres the premise.

Affordability must surely be measured as a multiple of the borrowers ability to pay. On this basis then, the definitive metric for mortgage borrowers affordability must surely be household income.

30 years ago, household income was the almost the same as single salary income, in 90% of cases. As women typically did not work, or worked for low wages part time.

On a national basis, average single salary mortgage multiplier for the last 10 years has averaged 4.5 times single salary, as the social shift from few women working, to most women working, has become reality.. And dual income mortgages have become prevalent.

So, over the last 30 years, we have seen the culmination of an underlying, and unlikely to be reversed, social trend which has increased average houshold income by a significant amount.

If a household on dual incomes can easily afford a multiple of 3.5 times joint income, why is this bad?

And other than the obvious argument, ie, that single people should be able to afford houses too... Childless drone couples are bad.... How is this a bad thing from the banks perspective?

After all, if a single income household loses a job, the bank is fooked. If a dual income household loses one job, the mortgage will still more than likely get paid, even if some other debts get defaulted on.

Let the "you're a Labour Employee/childless drones are bad/single people rule" flaming begin in....

3........

2........

1.......

Go!!!!!!!!

[the-sign-jacker]

all bets are off. were in uncharted territory. the price no longer seems to matter.

financial survival is the new kid on the block. not multiples.

[HAMISH_MCTAVISH]

all bets are off. were in uncharted territory. the price no longer seems to matter.

financial survival is the new kid on the block. not multiples.

Boring!!!! (although possibly true)

[m4rk]

well i have just been offered pretty much bang on 3.5times salary. no debts no dependants safe as can be in these circumstances job perfect credit history. how any other ftb will get any other higher multiple is doubtful to me.

[HAMISH_MCTAVISH]

well i have just been offered pretty much bang on 3.5times salary. no debts no dependants safe as can be in these circumstances job perfect credit history. how any other ftb will get any other higher multiple is doubtful to me.

Hi M4rk,

Well, they could be married, with long term joint income history with their bank. FYI, most buyers are not 23 Y/O singletons like yourself. (no critique meant there, just a simple statement of fact)

Did you read my response to your recent thread on that subject?

Any response?

Cheers,

Hamish.

[m4rk]

too late just now to get into it bed soon but il have a look and have a think

i was under the impression the "traditional" method of working out a couples mortgage was 3x the main salary plus 1x the others?

[HAMISH_MCTAVISH]

too late just now to get into it bed soon but il have a look and have a think

i was under the impression the "traditional" method of working out a couples mortgage was 3x the main salary plus 1x the others?

It was. In the days when women were expected to focus on breeding as their prime obligation.

Thankfully those days are now long gone.

So again,. lets assume that a male in Aberdeen's average salary is 36K. (as the stats suggest)

Lets then assume that a woman makes an average of 25K, (contentious I know, as it's low, but humour me) given she may take time out to give birth, get behind on the career ladder, etc.

A couple's average household income is then 61K.

So 3.5 times a typical mortgage applicants household income in Aberdeen is now £213,000. (As believe it or not, most applicants are couples)

Do you see the problem now with assuming Aberdeen prices will fall to £100k??????? Not in this lifetime, IMO.

[1929crash]

It was. In the days when women were expected to focus on breeding as their prime obligation.

Thankfully those days are now long gone.

So again,. lets assume that a male in Aberdeen's average salary is 36K. (as the stats suggest)

Lets then assume that a woman makes an average of 25K, (contentious I know, as it's low, but humour me) given she may take time out to give birth, get behind on the career ladder, etc.

A couple's average household income is then 61K.

So 3.5 times a typical mortgage applicants household income in Aberdeen is now £213,000. (As believe it or not, most applicants are couples)

Do you see the problem now with assuming Aberdeen prices will fall to £100k??????? Not in this lifetime, IMO.

The emphasis was never on breeding per se. It involved, and still does, care and nurture. The idea that it is productive for societies to get all their popualtion to work in offices while neglecting care is absurd and dangerous.

[HAMISH_MCTAVISH]

The emphasis was never on breeding per se. It involved, and still does, care and nurture. The idea that it is productive for societies to get all their popualtion to work in offices while neglecting care is absurd and dangerous.

Again, let's assume for the sake of this argument, that women are actually developed human beings and members of society that value their contribution to the workplace, as well as the home. I've already discounted 30% of salary for the birth, care, and nurture factor. Are you suggesting that kids in school would be better served by their mothers sitting at home?

And if not, then whats the argument for joint not being a valid metric? And therefore penalising couples?

[1929crash]

Again, let's assume for the sake of this argument, that women are actually developed human beings and members of society that value their contribution to the workplace, as well as the home. I've already discounted 30% of salary for the birth, care, and nurture factor. Are you suggesting that kids in school would be better served by their mothers sitting at home?

And if not, then whats the argument for joint not being a valid metric? And therefore penalising couples?

Well, it's about to become a bit of an academic argument, since unemployement is going to increase massively and I suspect that couples with two earners may well become a thing of the past.

Also, I did not say that women had to nurture and care. I said that it should not be undervalued.

You obviously regard such activities as second class.

[scottie57]

The assumption is that there will be two income familes . Even in Aberdeen thats going to be a lot rarer than

currently. Salaries are going to drop from competion for work and a lot more couples will have only one income in the near future. Even a 10 % drop in two income familes will kill the market apart from the other things that are happening.

[HAMISH_MCTAVISH]

Well, it's about to become a bit of an academic argument, since unemployement is going to increase massively and I suspect that couples with two earners may well become a thing of the past.

Also, I did not say that women had to nurture and care. I said that it should not be undervalued.

You obviously regard such activities as second class.

Not at all. I'm just commenting on the typical situation, whilst happy to acknowledge exceptions.

So your argument is, that there is no reason dual should not be a fair metric, but because you believe the recession will be so bad that most dual income households will lose a job, then it will be fine in the end?

[1929crash]

Not at all. I'm just commenting on the typical situation, whilst happy to acknowledge exceptions.

So your argument is, that there is no reason dual should not be a fair metric, but because you believe the recession will be so bad that most dual income households will lose a job, then it will be fine in the end?

How many angels can dance on the head of a pin?

[HAMISH_MCTAVISH]

The assumption is that there will be two income familes . Even in Aberdeen thats going to be a lot rarer than

currently. Salaries are going to drop from competion for work and a lot more couples will have only one income in the near future. Even a 10 % drop in two income familes will kill the market apart from the other things that are happening.

Well, thats been the average for the last 10 years.

Do you really believe that a 10% drop in dual incomes is the same as a single income of 3.5 times? Far from it IMO.

[HAMISH_MCTAVISH]

How many angels can dance on the head of a pin?

Is that really the best you've got?

[1929crash]

Is that really the best you've got?

Debt should be reduced, not encouraged. And the theological argument I posed is still unresolved after all these centuries.

[Mr Nice]

women have been in the workplace for a long time now, and joint income mortgages are also pretty commonplace.

2.5 times joint income has been found to be the highest level of prudent lending.

anything higher leads to unacceptable risk levels.

many women take time out for children. either can lose a job etc.

especially now that women are making close to male incomes, in many cases if the woman lost her job, that would have the income available to cover the mortgage.

so that 2.5 times income becomes 5 times income, which is totally in crash territory.

with joint income, there is double the chance of something going wrong, so that has to be expressed in the multiple.

the fact that it is so common for one parent to take time out for kids should really drive that home.

the coming depression is also going to be upping the risk factor on two people maintaining their incomes.

Edited January 16, 2009 by Mr Nice

[1929crash]

women have been in the workplace for a long time now, and joint income mortgages are also pretty commonplace.

2.5 times joint income has been found to be the highest level of prudent lending.

anything higher leads to unacceptable risk levels.

many women take time out for children. either can lose a job etc.

especially now that women are making close to male incomes, in many cases if the woman lost her job, that would have the income available to cover the mortgage.

so that 2.5 times income becomes 5 times income, which is totally in crash territory.

with joint income, there is double the chance of something going wrong, so that has to be expressed in the multiple.

the fact that it is so common for one parent to take time out for kids should really drive that home.

the coming depression is also going to be upping the risk factor on two people maintaining their incomes.

Excellent post.

[BXLONDONMAN]

women have been in the workplace for a long time now, and joint income mortgages are also pretty commonplace.

2.5 times joint income has been found to be the highest level of prudent lending.

anything higher leads to unacceptable risk levels.

many women take time out for children. either can lose a job etc.

especially now that women are making close to male incomes, in many cases if the woman lost her job, that would have the income available to cover the mortgage.

so that 2.5 times income becomes 5 times income, which is totally in crash territory.

with joint income, there is double the chance of something going wrong, so that has to be expressed in the multiple.

the fact that it is so common for one parent to take time out for kids should really drive that home.

the coming depression is also going to be upping the risk factor on two people maintaining their incomes.

bump...spot on !!

[HAMISH_MCTAVISH]

women have been in the workplace for a long time now, and joint income mortgages are also pretty commonplace.

Women have been integrating into the workplace, only in any significant numbers, over the last 30 years.

This has been a progressive change, and it's only in the last 10 years that this has become the rule, rather than the exception. Co-incidentally (or not) the average salary multiple for the last 10 years has been 4.5 times single income.

2.5 times joint income has been found to be the highest level of prudent lending.

anything higher leads to unacceptable risk levels.

many women take time out for children. either can lose a job etc.

especially now that women are making close to male incomes, in many cases if the woman lost her job, that would have the income available to cover the mortgage.

Says who? Why?

In the example given at the top of the thread, I already discounted the womans salary by 30% due to taking time out from a career to give birth, care, nurture, etc.

And the reality is that banks are MORE secure, not less, with a dual income. After all, if one person in a single income household becomes unemployed, the bank (and the household) is foocked. Whereas in a two income household, there will still be enough income to pay the mortgage for several months longer, before defaulting, giving a critical breathing space for finding new work. After all, the mortgage is almost invariably the LAST thing to be defaulted on.

so that 2.5 times income becomes 5 times income, which is totally in crash territory.

Again, why? 5 times household income (which USED to be the same as single income) may have been crash territory before, but that is no longer the case. It's not 5 times household income now. It's still 3.5.

with joint income, there is double the chance of something going wrong, so that has to be expressed in the multiple.

No. Exactly the opposite. With joint income, the bank has half the risk of default due to a loss of job.

the fact that it is so common for one parent to take time out for kids should really drive that home.

Again, the income was already discounted to allow for this. Did you completely fail to read the original post?

the coming depression is also going to be upping the risk factor on two people maintaining their incomes.

And again, what better time for a bank to lower their risk by spreading the income over two incomes, not one. Half the chance of a total loss of income.

Please. I know you guys can do better than that.........

[apom]

What do we know?

The greater economy fails when house prices hit that level, the money simply does not exist for more then a fraction of the housing stock to change hands at that price

As house price increase or maintain, that fraction of houses that have exchanged at the higher price increases to the point where it all collapses..

fractional reserve lending works to a point. but not where there is no accountability or responsibility to manage or contain it.

But, borrowing that much of your future salaries requires that a good proportion of that money exits in the economy now.

If you want to see how much, artificially lower ir's, fail to regulate banks light the touh paper and sit back...

or ask brown who has already done that...

[Tummybanana]

It was. In the days when women were expected to focus on breeding as their prime obligation.

Thankfully those days are now long gone.

Ah, yes, the morally repressive days of 2000, when men and women new their place and a gentleman could have a moustache without being considered a sodomite.

3 + 1 is what we took out with Abbey, then HSBC back then.

[HOORAY]

30 years ago, household income was the almost the same as single salary income, in 90% of cases. As women typically did not work, or worked for low wages part time.

On a national basis, average single salary mortgage multiplier for the last 10 years has averaged 4.5 times single salary, as the social shift from few women working, to most women working, has become reality.. And dual income mortgages have become prevalent.

If a household on dual incomes can easily afford a multiple of 3.5 times joint income, why is this bad?

You have answered your own question you fool. 30 years ago a second income was not even considered towards affordability - it was based on the main income. This then changed to 3.5x single or 3xhigher plus 1x lower wage. This then moved to 3.5 joint and latterly 5-6x salary mortgages.

If you are allowed 3.5x joint salary HPI rams the price to the point where you NEED 3.5x joint income to get a mortgage large enough to buy the property you want. These decisions are instinctively anaethema to most people and it is only the gamble of increasing house prices which then get people to sign the paperwork, oping to make enough equity when they sell to move to another property.

There are a lot of single working parents who cannot afford a mortgage and those that can are in hock for 30 years, many have negative equity and many have stupidly got interest only mortgages because that is all they could afford instead of renting on long term-ish leases. Social Justice from the left wing perspective?

In cases where two parents are working to pay the mortgage and not much else, common sense tells you the children suffer from inattention, supervision and education. Is this unrelated to the uneducated loutish population, lacking motivation and skills thus making themselves unattractive to employers, causing huge expense to the section of society which does work, does produce, and does contribute?

Women now NEED to work so how has their 'empowerment' helped them ? No one is suggesting that women do not have a right to work, or ar unproductive - the economy needs women now. However they have less choice as to whether to work or be a housewife and/or mother - it is now the case that housewives and mothers need to work.

I havent read the rest of this thread but Im sure many will tell you why it is bad.

[since the beginning]

Is 4.5x that bad for the aveage house?

I think the problem was / is that the crappest flat was more than 5x average income. I.e. In London and South East a 2 bed flat would be say £250,000 compared to an mean wage between £25,000 - £35,000 and a median wage below that.

If a 3 bed house comes down to 4.5 £30,000 then that would be accetable in my book.

[thecrashingisles]

So again,. lets assume that a male in Aberdeen's average salary is 36K. (as the stats suggest)

What's the income distribution like in Aberdeen? I'd guess there's a fair number of people earning £100k+ skewing that average so it doesn't tell you much about what a typical person in Aberdeen earns.

Also that survey was done by the GMB who have a vested interest in making it appear that average salaries are higher than they really are so they can use it as a bargaining tool. The same survey also claimed that the average salary in London was £46,000 which is higher than other data I've seen.