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3.5 Times Income Isn't That Cheap

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I've been doing some sums about what I could afford to buy (need to do so before too long for family reasons - better a bit of negative equity than no wife...).

I started from the presumption that I should borrow 3.5 times my income and add that to my STR proceeds (wife doesn't work, 3 children at home). But then I started doing my sums. Now forgive me, because I'm a cautious sort of fellow and so my assumptions on family finances were probably a tad pessimistic, but when you work out the real cost of living in the SE on the sort of salary I'm on (which isn't bad but isn't great either) then you soon find that a 3.5 income if you are a sole earner with a family is really quite a stretch.

By the time you factor in not just the mortgage interest but also something towards the capital, council tax, electricity, gas, water, phone, mobile, clothes for growing children (and they have plenty of jumble sale purchases!), toys, a bit of charitable giving, running a car (and depreciation), season ticket, a bit of cash to put aside for when things break, and perhaps a cheap holiday, there really isn't a lot left for much in the way of going out at all. Oh, and children will of course start getting more expensive, and demanding their own phones, new clothes, pocket money etc..... :unsure:

Having looked at the sums again, we really don't feel we can stretch to anything more than 2 times income as a loan - especially if we are going to be able to continue to service it as the kids get older (I may have job security but I also have a pretty secure idea my income won't go up much!).

Why this rambling post? Because I'd always assumed that 3.5 income was a 'minimum' base for house prices since such a loan was easy to service. It was with my STR'd flat. But it isn't for a family house with kids. If my circumstances are in any representative of many others, then I can now begin to see just why houses might really bottom out much lower than many might first think. We are lucky, we have STR profits and were given a helping hand on the ladder by les parentals, but many aren't so lucky and will have to borrow nearly all they want to spend on a house. If Joe Public and co. suddenly wake up tomorrow and discover there is more to life than owning a house (and the attraction will surely wane once HP indices go negative) and they'd actually like to live a little with their pay packet, then we could be in for a very bumpy ride.

Does anyone else find themselves doing similar maths re. their income? Or am I odd? (come to think of it, don't answer that last question...).

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Does anyone else find themselves doing similar maths re. their income?  Or am I odd?  (come to think of it, don't answer that last question...).

hadnt really done the sums until you said ,i agree 3.5 times is not gonna provide a very interesting life with whats left... i also have 2 kids.

i was beggining to think a 30% crash would do , looking at the sums again its gotta be 50% from current asking prices....or a whopping 100% pay rise...i know whats more likely :rolleyes:

dont worry fella , your not alone.

50% crash is only 4 years ago :huh:

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Are you sure you've got that right? A 100% rise is equivalent to a 50% crash

Say a house last year was £100,000. It goes up 50% to £150,000. A drop of only 34% brings it back to £100,000

Thanks! :)

I should also note that one of the factors in my calculations is the penny on income tax/national insurance/stealth tax which is the minimum that Gordon Brown is going to have to raise in order to balance the books at the next budget.

My nervousness about salary increases reflects in part a wider economic problem associated with low inflation. In the past young couples/singles could happily borrow 3.5 times income and still meet their bills when they grew a family since they could happily expect their salaries to rise in line with the higher inflation rates prevalent at the time. At the moment low inflation is translating into lower wage settlements and so the young DINKIES that take on big loans are going to find it really hard when the cost of children starts kicking in on not-substantially-higher salaries.

Finally, I've budgeted for rapidly increasing Council Tax. I'm fortunate in that we made a lot on the flat I STR'd and so we can buy a place beyond the means of our salary alone which distorts how much Council tax we'll pay relative to income tax. But, as No 10 seeks to avoid putting up direct taxation, it will simply pass more of the burden onto local councils who will have to answer with whopping council tax increases so that soon Council tax payments will exceed income tax payments for many. That will no doubt help take the floor out of the housing market for those on lower incomes.

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Yes you are right. The 3.5x income is not a starting amount but a standard mortgage lenders ceiling! The banks don't think that people can realistically afford more.

Right now we do have a lot of extra demands on our money, and before mortgage costs the average househols spend as a proportion of income is at a high point right now. I think this is true, but I don't have the facts and figures to prove it, perhaps someone else can get them.

Traditionally the average mortgage lending to price ratio for a single income is more like 2.5x . As this thing blows FTBs are going to find it hard to find any lender willing to lend them 3x their income IMHO, let alone 3.5x!

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High levels of wage inflation (and tax breaks) have made 3.5X far more affordable in the past than it looks now, or likely to look in the future when you take the competitive world economy into account which simply isn't allowing people to write themselves YOY pay rises. Yet meanwhile there is high inlfation in a large number of necessary and inescapable items (outside of housing).

Of course we could never reach 3X or even 2.5X ever again, or so we are told.

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Hi Civil Servant - one problem with the current bubble is that it makes perfectly normal, average people like you (no offence!) feel like freaks and failures.

I too have a very decent salary (well above average, excellent promotion prospects, excellent benefits, very much the kind of job you boast to your mother-in-law about) and frankly 3-4x my salary still looks a million billion miles away from even starting on the ladder.

I try not to worry about it, although often I do. I try to remind myself that I am in the upper-middle third of the population (rich-middle-poor) and that pure, simple logic alone tells me that if I can't buy, then there is something wrong.

Box, one bed apartments in not-great areas of town are just about as far as I'd be able to go (and even then we are talking above 3/4x salary + savings + gift).

Either something's wrong, or I have a lot to learn about the laws of gravity over the next 20 years of my life.

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Thanks. Topher Bear: I had always 'known' 3.5 was the ceiling for a single income mortgage but as long as I have been reading about 5x and 6x mortgages in the national press I've been thinking as if 3.5 was the floor, and not the ceiling.

Stretching yourself was 'sensible' in a rising market. I wonder how long it will take before the nation takes a collective pill, chills out, refuses to mortgage themselves to the hilt and then house prices slide back to a level where we can have some quality of life as well as a roof over our heads!

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On two median average incomes with zero debt, no car and zero transport costs to work, food bill not more than £22 for two people a week but with high council tax, extortionate rent, you have count every penny and consider every £5 purchase thoughtfully.

Buying a place would be another body-blow, surpassing extortionate rent, unless only looking for a semi-studio designed for a single. Oh, and then there'd be any other bills if something went wrong with the place, buildings insurance, etc. All-in-all around 350-400pcm more than renting if you look at it honestly.

Kids? That wouldn't compute in the slightest. If we moved to a dirt-cheap area, it would be hard to find well-paid employment and we'd doubtless need a car to travel to the nearest centre of employment, negating much of the cheapness.

Like most people our age we are effectively economically sterilised. We would have to fiddle the social or cram in with mum to make it happen.

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I also think that people have forgotten just how hard it is to service a mortgage on 3.5 times your income also - even if you are a happily married couple with, for example, the husband working and the wife being a Mother at home or perhaps working part-time.

Millions of people did this in the post-war years and, as I know from my own hard-working parents and the parents of friends, neighbours and family, it was, putting no finer point on it, bloody hard.

Apart from the paying the mortgage there are all the costs of owning and upkeeping a house, bringing up a family and if you are really lucky putting some money away for your retirement.

I think this cost has been hugely under-estimated and you can often go to houses right across the UK where it is obvious that, despite two hard working parents, the cost of servicing their mortgage has been such that little money has been left over to decorate or modernise their home or, as we are seeing inreasingly here in the UK, put away money for a good retirement. You see this even though, in theory, alot of people should have benefitted in the past 50 years from the 'inflation bonus' of the initial years being costly on a mortgage but wages, over time, inflating to make the repayments more' affordable'.

Now, if people have had difficulties in having cash left over after paying for a home in those times then it is easy to see what problems people have now in the current climate - ridiculous house prices, no inflation eroding the debt as wages rise, interest only mortgages affordable by most, huge credit debt, total destruction of the pension system.

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I think this cost has been hugely under-estimated and you can often go to houses right across the UK where it is obvious that, despite two hard working parents, the cost of servicing their mortgage has been such that little money has been left over to decorate or modernise their home or, as we are seeing inreasingly here in the UK, put away money for a good retirement. You see this even though, in theory, alot of people should have benefitted in the past 50 years from the 'inflation bonus' of the initial years being costly on a mortgage but wages, over time, inflating to make the repayments more' affordable'.

They don't even have to be parents. Plenty of young people have over-mortgaged to buy a place in need of complete refurbishment and of course have no money to do it beyond a bit of putty in the rotting windows and some white emulsion over the crumbling plaster. We know of a few like this!

It shows how mad the world is - two income couples with good jobs living, in reality, in what an external observer would consider to be utter poverty.

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I have to agree about the 3.5X income being expensive. My husband has his own business and earns reasonably good money, 3.5 time his income would give us a mortgage of about £190,000, I don't work as I have a small child. We did initially look at buying a property when we first moved down to this area, but we have decided there is no way on this earth we will mortgage ourselves up to the hilt like that and have no quality of life. (we have never had a mortgage over £50,000 as lived in Scotland previuously) the very thought of a mortgage that size terrifies us. My point is obviously there are people out there who have taken 4, 5, 6 times there salaries through self-cert etc, how can they sleep at night and what sort of life do they have. I just find it rather sad that this is the situation a lot of us are in now, being forced to take out so much debt just to get a roof over your head. We are currently renting and will continue to do so until the prices come down significantly and if they don't will probably continue renting as we refuse to pay these outrageous over inflated prices.

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That IFS calculator is incredible!

A single person, no dependents and no council tax (renter) on £30k is in the 5% of earners nationally!!!  :o

This forum seems to think 30k is average, even poor. The mean average salary - including the mega-earners - but two thirds of the population earn below 19k.

My current employer has hundreds employees and over two-thirds of these probably earn £11-17k. Interestingly, those over 35 often have mortgages on flats/houses.

How times have changed. The younger ones pay the same in rachman rent month for a third-world lifestyle.

Welcome to mega-expensive, sweatshop UK.

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Try this if you think you're a failure:


courtesy of: Topher Bear

Interesting link. According to that I earn more than 89% of the population (i.e. in top 11%).

Yet, if I multiply my income by 3.5x (which, doing the calculations would be a little uncomfortable to repay - certainly comapred to renting), here's a selection of what that would currently buy me in this area:

£179,950 - 1 Bedroom Bungalow

On council estate, "in need of modernisation",




£179,950 - 2 Bedroom Flat


£179,950 - 2 bed house


£177,500 - Small 2 bed house, in need of some modernisation


Repayment on these properties would be around £1,200 a month, on a 25yr mortgage.

For similar money I could rent any of the following in the same area:

4 Bedroom House:


3 Bedroom Detatched House


3 Bedroom:


4 Bedroom:


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...and for just over half the £1,200 a month it would cost to buy those 1-2 bed slums, I could rent the following for £700-850 a month:

3 Bed Semi

In nice area


3 Bed Semi,

again, in good area


3 Bed Semi


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With regards to your observation that a 3.5 times salary mortgage makes life a struggle because of all the other bills ... I think you are unusual in that you have actually sat down and made a list of your expenses.

I think very few people do this. They just keep paying the bills as they come in, sticking it on credit cards etc. and MEWing every now and then to keep the balls in the air.

That's why a crash is absolutely inevitable. We are already reaching the end of people's ability to keep borrowing to keep going and now we must face the music. The money borrowed must be paid back - and ever inflating property prices is something that, by definition, cannot continue indefinitely.

I have a budget. And by the time you add everything to it, it makes frightening reading. You need a huge amount of money these days just to live. I cannot understand how people on low salaries cope.

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I also budget - we concluded that a mortgage in excess of 2x joint was unacceptable if we wished to continue a very pleasant lifestyle.

I've been amazed at the amount some BS are prepared to lend (using their internet sites as information) - up to 4x joint (and more in some cases). Irresponsible and stupid of buyers to take up such "offers".

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