I Dont Think House Prices Are "unaffordable"

[Bagehot]

We've heard all the hype about house prices being unafforadbale - which they are to some degree. The question is to what degree? Am I correct in thinking that the average person spend 17% of net income on mortgage and the FTB about 35%? If so, and if this is the reason why we assume that FTB are priced out of the market then I really wish I had done my own research before deciding not to buy 2 years ago.

I think the average person should be able to spend a min of 50% of net income on mortgage payments. I am saving such a sum (inc my rent).

How much do you spend on your rent/mortgage

[KingCash]

We've heard all the hype about house prices being unafforadbale - which they are to some degree. The question is to what degree? Am I correct in thinking that the average person spend 17% of net income on mortgage and the FTB about 35%? If so, and if this is the reason why we assume that FTB are priced out of the market then I really wish I had done my own research before deciding not to buy 2 years ago.

I think the average person should be able to spend a min of 50% of net income on mortgage payments. I am saving such a sum (inc my rent).

How much do you spend on your rent/mortgage

So the average for FTBers is 35%? I think you're missing one vital piece of logic. 35% is for those who have actually bought. For those that haven't, I suspect the percentage would have been 60%, so they just didn't buy. Statistics can prove anything, you know.

And if you're on a salary of 16K then you most certainly can not afford half your pay to go in housing costs.

[iLegallyBlonde]

Our rent is about 16% of our combined income, for a 5 bed detached in an acre. If we bought this house with a repayment mortgage it would be 87% of our take home. As the council tax is currently 7% of our take home you can see this would not be affordable with 4 kids, 2 cats and a dog to feed along with ourselves. Not to mention petrol for the car.

[sun n sea]

17% of net income? How much do you think people are earning out there?

First time buyers are staying away as they are being asked to pay huge money for rubbish, barrel scrapings. Buy to letters are happy to pay big money for $hite- they aren't going to be opening the front door on it every day.

What percentage you pay out of your wages depends on how big your wage cake is. On average wages and with eyewatering house prices a straight repayment mortgage is going to cost a big part of most peoples wages.

Oh, and house prices unaffordable to some degree is a pretty huge understatement if you ask me

Edited September 12, 2006 by sun n sea

[grey shark]

17% of net income? How much do you think people are earning out there?

First time buyers are staying away as they are being asked to pay huge money for rubbish, barrel scrapings. Buy to letters are happy to pay big money for $hite- they aren't going to be opening the front door on it every day.

What percentage you pay out of your wages depends on how big your wage cake is. On average wages and with eyewatering house prices a straight repayment mortgage is going to cost a big part of most peoples wages.

Oh, and house prices unaffordable to some degree is a pretty huge understatement if you ask me

Oh look it's my old m8 Sun n sea , you didn't mention outsiders coming into Dorset in this post , why not ? Thats your obbsession isn't it anyway judging by some other posts i've seen you make , it looks like i've educated you on the housing subject if ever so slightly

Wage cake

[Scarecrow]

My mortgage is only two times my salary, but it still takes up 25% of my net wage after pension contributions have been taken into account. This for a one bed flat, where my mortgage is about 40% of the 'value' of the flat. I certainly couldn't afford 50% of my wage - how would I pay utilities, council tax, travel and food? It'd be impossible, let alone dangerous when taking into account what a small increase in interest rates would do to payments. I guess the lower % comes from families with two wage earners, and a lot of equity.

[NJP]

I can't remember which mortgage lender gave those figures for percentage of take-home pay, but the methodology was clearly ridiculous when I looked at it.

Put it this way. Imagine I'm earning £50k a year, My take-home would be £2500 per month. 35% of that would be £875 per month, which equates to a mortgage of around £135,000.

Since I'd be earning twice the average wage, it seems strange that my 35% of net salary wouldn't even buy me a studio flat in London.

[sun n sea]

How ya doing sharky- you made the move yet?

Maybe we could go for a beer and you could patronise me in person . (you might have to get em in though cos I'm on pretty average out of town money you know..... mine'll be a pint of scrumpy mush, cheers

Average house prices here are 200 grand and average wages are 20 grand- someone with a calculator will no doubt furnish a percentage- but it's not looking good for the 35% target.

[grey shark]

How ya doing sharky- you made the move yet?

Maybe we could go for a beer and you could patronise me in person . (you might have to get em in though cos I'm on pretty average out of town money you know..... mine'll be a pint of scrumpy mush, cheers

Average house prices here are 200 grand and average wages are 20 grand- someone with a calculator will no doubt furnish a percentage- but it's not looking good for the 35% target.

I'll stick a post up on the Dorset thread later or tommorow , the thread needs pulling up anyway , wage cake ain't no problem here

[enworb]

My mortgage is about 40% of my take home salary. I actually find it very easy to aford my mortgage and all other bills. So much so that I am over paying over £100/month and concidering paying even more.

And no I don't live on the breadlne. I have 2 cars (one a kit car) which obviously cost money to insure, tax, MOT and run. And I eat out probably to much.

For me paying off the mortgage asap is important. Why spend 25 years paying back much more than I will by paying it off in half the time. Of course this is not always possible but for couples surly it is.

[PropertyGuru]

according to official figures, 93% of FTBs are now 'priced out' in the UK. So think what you like, Mr Trollhot, it makes no difference to reality.

[Bingley Bloke]

The 'affordablity on the grounds of low interest rates' argument only works in conjunction with a cast iron guarantee of no rates rises and decent future wage inflation. Mortgages on overpriced houses may well be affordable today, but they have to remain affordable for the full term, which they won't.

[Pluto]

We've heard all the hype about house prices being unafforadbale - which they are to some degree. The question is to what degree? Am I correct in thinking that the average person spend 17% of net income on mortgage and the FTB about 35%? If so, and if this is the reason why we assume that FTB are priced out of the market then I really wish I had done my own research before deciding not to buy 2 years ago.

I think the average person should be able to spend a min of 50% of net income on mortgage payments. I am saving such a sum (inc my rent).

How much do you spend on your rent/mortgage

Affordable is only relevant at the time you say it.

The problem is mortgages last for 25+ years - and anything can happen in that timeframe to make then unaffordable - especially when the money was borrowed at historically low interest rates.

Doesn't anyone pay any attention to history?

[OnlyMe]

Err hello,

If people on average moved to spending 50% of their net income on mortgages then retail, pensions, services, well in fact every market would be trashed, they'd be facing years/decades of falling demand.

Edited September 13, 2006 by OnlyMe

[RichB]

It's worth remembering that according to cml the median ftb salary is 35k. According to ONS median uk wage is 25k.

Bit of a difference wouldn't you say - having to earn 40% more than the median wage to be a median ftb?

[iamnumerate]

I can't remember which mortgage lender gave those figures for percentage of take-home pay, but the methodology was clearly ridiculous when I looked at it.

Put it this way. Imagine I'm earning £50k a year, My take-home would be £2500 per month. 35% of that would be £875 per month, which equates to a mortgage of around £135,000.

Since I'd be earning twice the average wage, it seems strange that my 35% of net salary wouldn't even buy me a studio flat in London.

It would buy a flat in South East London.

Although I agree with you that overall.

[misfit]

A mortgage to salary percentage of 40% maybe satisfactory for a single person but I am sure if children were included in the equation then this would no longer be possible so I think this argument is relative to ones circumstances.

[lulu]

We've heard all the hype about house prices being unafforadbale - which they are to some degree. The question is to what degree? Am I correct in thinking that the average person spend 17% of net income on mortgage and the FTB about 35%? If so, and if this is the reason why we assume that FTB are priced out of the market then I really wish I had done my own research before deciding not to buy 2 years ago.

I think the average person should be able to spend a min of 50% of net income on mortgage payments. I am saving such a sum (inc my rent).

How much do you spend on your rent/mortgage

That isnt the only factor going around. The last time I went to a building society to ask about mortgages they told me I could borrow ~£77,000 (I forget what the repayments were) the reality of the situation around here is that there is naff all around that I can afford to buy, well apart for a flat in the grottiest end of the city - and to be quite honest, call me miss picky if you want, but I dont want to live there - I prefer living somewhere where there is more than a betting shop an off licence and a Greggs - all of which are boarded up most of the time to stop the locals gaining 24 hr access to facilities). moderate parts of the parts of the city now selling for £100000 for the crappiest one bedroom flat - I dont yet have the £23,000 difference.

So to sum up - the repayments are the least of my problems

[r thritis]

The 'affordablity on the grounds of low interest rates' argument only works in conjunction with a cast iron guarantee of no rates rises and decent future wage inflation. Mortgages on overpriced houses may well be affordable today, but they have to remain affordable for the full term, which they won't.

Very valid and important point. Affordability is the reason we have got into the mess we're in now. Lenders and borrowers have confused low interest rates with cheap money, in fact you hear the 2 terms used interchangeably. What is important is the interest rate relative to wage inflation.

The fundamental problem with loans is that they are divided up into equal repayments over the term (making adjustments now and then for variable interest rates). In times of high inflation, the payments start high but decrease rapidly from year to year in real terms. In times of low inflation, they start low but diminish more slowly. But under either scenario, you will end up paying pretty much the same in real terms over the life of the repayments. Unfortunately this 'low-start' effect has enabled people to borrow ludicrous amounts, because they can afford the monthly payment at the outset, and the illusion of cheap money. This huge injection of money into the economy is inflationary, leading to higher interest rates (this is where we are now) and the enevitable bust cycle as the economy dries up loans are defaulted, etc.

The way to avoid the boom-bust cycle is to link monthly loan repayments to the current interest rate or the CPI, so they diminish by the same amount in real terms from year to year, regardless of whether we are in a high or low interest rate paradigm. This is the fundamental change Gordon Brown's successor must bring about if we really want to rid ourselves of boom-bust. GB himself will by then have been confined to the history books as the most incompetent chancellor in history.

[Guest Bart of Darkness]

Of course this is not always possible but for couples surly it is.

Childless couples maybe.

[Phlash]

Childless couples maybe.

Here here!

[since the beginning]

I reckon for people who are FTB's or 'Moving up the Ladder' then the average new mortgage taken on would be about £200,000 (Down South).

To maintain the 35% for FTB's and 17% for rest then the net salary per month would have to be about £3500 and £7000 respectively i.e. pretty f***ing high. Of course these stats are because large amounts of people have not traded up for years. A more useful study would be of people that have bought or traded up in the last 5 years. I'm sure a completely different picture would become apparant.

[sm9ai]

Well as for me and my wife. (Earning around £25k each)

We pay about 20% of our wages in rent and about 20% in bills.

If we had a mortgage that would be around 30% and still 20% in bills which is half my salary. (Still very affordable)

If we had kids, or one of us was ill then it would jump to 60% mortgage and 40% bills and thats all the wages gone.

So yes we could afford now but it wouldn't leave any room for error. So basically there is no way in hell that I would buy as things stand at the moment.

[zag2me]

Depends what kind of property you want to buy.

A single bloke could go out and buy a studio flat paying about 30% of their wage on mortgage as a first time buyer these days.

If he wanted a 3 bedroom house, and rented the other 2 rooms, it could be even less.

Still affordable in my eyes.

[ummabdullah]

I think people need to take into consideration the expenses that go with ftb in 35k and above price brackets. And also that ftb in this salary range are already in their early 30's. Sure for 2 working couples it does seem a bit better.. accept they will have to pay child care.. still they will recieve some form of ctc under 63k which is better than nothing at all.

However, many of us.. will coincide that work expenses are outrageous. Petrol to drive to work is a big problem. My husband spends £250 visiting patients and driving to work a month.. Okay some people may say.. live closer to work.. My reply.. You live closer to his work sweetheart.. I wouldn't be caught dead walking with my children in those areas let alone send them to the worst schools in the country!

That is not to mention the clothing budget of suits, ties, shoes.. for my husband.. Me and and the kids live out of primark and aldis these days.

Other expenses include car insurance, main. ectr... Parking fees.. ectr.. And oh yeah loads of monthly prescriptions.

And that is without me having a car.. walking absolutely everywhere, not spending money on buses.. and shopping at aldi's.. and no we are not big eaters..