OK boomer - House prices have doubled as a proportion of salary since 1970

[barbarajean63]

Headline: In 1970 average house prices were 3.8 x average annual salaries. In 2018 that figure is 8.4.

Thought you might like to see the chart I created showing the change of average salaries in the UK and average house prices.

https://www.reddit.com/r/dataisbeautiful/comments/e1guqk

 

[hearken777]

@barbarajean63 Interest rates have never been this low, this consistently, which will explain a huge part of the vast increases in home prices. More people have been able to afford mortgages over the past 10-20 years, so more people go out to the property market. Housing development didn't keep up, and you end up with the graph you're at. Demand outstrips supply, prices rise.

 

[raylighti]

@hearken777 The monthly payments may (or may not) be roughly as affordable, you need to save for a much bigger deposit now though

 

[chicagocgcet]

@raylighti Another difference is that inflation is lower, too (hence the lower interest rates). Buy a house in 1980 and you'd have found that by 1990 the value of your mortgage and repayments had halved through inflation alone. Buy in 2008 and by 2018 only 25% had gone.

The affordability of monthly payments increased much more quickly over time in the 80s than now.

 

[cinamon]

@raylighti It's still possible to get a 95% LTV loan (so, 5% deposit) so it's not so much that one "needs a bigger deposit".

Rules rightly put in place since 2009 require banks to limit total loan amounts to around 5x household income to ensure that people would not default on their mortgage if interest rates rose by 3%.

 

[lmac45]

@cinamon Right but the 5% is double what it was in terms of proportion of wage, so yes that is materially bigger.

 

[californiachristian234]

@cinamon You used to be able to get 100% LTV mortgages, and that was when interest rates were higher

 

[hearken777]

@californiachristian234 Yes, and then the subprime mortgages (a hell of a lot of which were 100% and even over 100% LTV) spanked the USA and was very clearly contagious across the financial world.

100% LTV mortgages are an awful idea on a asset that is not price-controlled. We're at low rates, there's precious little room to lower them any further - but when things start looking up again those rates are going back up, and people buying at 100% LTV are going to be hurting when they do. Furthermore, there's already opposition to low rates and QE in Europe. Banks widening their risk appetites in search of returns due to consistently low rates will drive the next financial crisis when the rates climb and debts start defaulting.

Deposits offer a small shield for lenders. If the value of a house drops the owner takes the hit, not the bank. That's painful for the owner, but stops the buck landing on banks (leaving them illiquid assets on balance sheets) when rates go up.

 

[californiachristian234]

@hearken777 Lol yeah I was just saying that they existed, not that they were a good idea.

 

[kimerella2]

@cinamon I was offered 5.5x

 

[cinamon]

@kimerella2 Thanks for sharing your experience. This is consistent with "around 5x".

 

[kimerella2]

@cinamon 0.5x is £100k difference for some people.. Can't just around!

 

[brendon83]

@raylighti As a % the number is the same, but in pure £s and as a multiple of salary it’s definitely higher.

 

[kwanie]

@hearken777 This and that demand has shot through the roof from overseas investors

 

[pasquale]

@hearken777 Not to mention how this hurts savers trying to get a deposit together

 

[resjudicata]

@hearken777 The mortgage market was also totally different in 1970. Back then, only building societies offered mortgages, the market was heavily fragmented and not particularly efficient, and you need to an account with them with substantial savings to actually get a loan. It just isn't that simple (as ever, people assume that the past was exactly the present, and that price is the only thing that has changed).

 

[chexmix19]

@barbarajean63 London skews the figures somewhat. House prices there are 13 times local salaries. However, even in more reasonable places like the East Midlands, the prices are 7 times higher than salary.

The interest rates being low is to blame, and bringing it up again will leave millions of people in negative equity. Who would pay off a £400,000 mortgage if the house is now only "worth" £300,000?

East Midlands	£190,171	£547
East of England	£286,611	£610
London	£463,283	£699
North East	£123,046	£531
North West	£159,471	£556
South East	£318,491	£636
South West	£253,752	£561
West Midlands	£196,571	£551
Yorkshire and the Humber	£162,129	£540

Region
Average price March 2019
Weekly Median Wage

Sources.

https://researchbriefings.parliament.uk/ResearchBriefing/Summary/CBP-8456

https://www.gov.uk/government/news/uk-house-price-index-for-march-2019

 

[magicalmoons]

@chexmix19 Low interest rates creates a bubble. Help to buy schemes inflate it further.

Having the bubble pop would be very bad news for the economy, as negative equity and stagnant house sales will be messy too.

Ideally there'd be a slow deflation, but there's just too many vested interests in keeping the price high.

 

[resjudicata]

@chexmix19

However, even in more reasonable places like the East Midlands, the prices are 7 times higher than salary.

But that's the average price and there's a lot of housing below that, especially what would have traditionally been thought of as starter houses.

 

[resjudicata]

@barbarajean63 Let’s face it.

In 1970 you could just about graduate secondary school and you still expect to have a house, wife, kids and car by age 30.

That was the baseline that literally anyone who wasn’t a crackhead could achieve.

If you had a bachelors degree, you easily had a middle management job and likely a sports car and Rolex on top of that.

Nowadays, you almost require a Masters just to reliably get interviewed for a white collar job. A car is a massive luxury, kids are something that will bankrupt most people, a wife is almost a necessity to split the rent and a mortgage is a pipe dream.