Interesting data from the Council of mortgage lenders shows how volatile the importance of mortgage payments as a % of income are. see: Mortgage Payments as % of Income
Currently first time buyers are spending just less than 20% of their income on mortgage payments. However, this isn’t significantly more than figures in the 1970s and 1980s.
For example:
- 1974 - 16.3 % of income
- 1985 – 19.2 %
- 1990 – 27%
This shows that by historical standards mortgage payments are not as unaffordable as often is suggested. It reinforces the idea that if only people could get mortgages, buying a house is still relatively attractive compared to renting.
People often focus on house price to incomes ratios. But, living standards depend primarily on what % of income goes on mortgage payments. And here the key factor is often base interest rates. For example, 1990 was a bad year for homeowners because interest rates were so high.
However, it is worth bearing in mind.
- Many First Time buyers with low incomes are excluded, because in the current climate they simply can’t get a deposit and sufficient mortgage. If low income first time buyers could get a mortgage, the % would rise.
- The % of income spent on mortgages has risen since 2003, when the ratio fell to only 11%
- The real problem for first time buyers at the moment is they simply can’t get any mortgage approved. If they could get a mortgage approved, their payments would often be affordable (and probably lower than renting). But, with the credit crunch they just can’t access a mortgage
Forecast for Mortgage Payments as a % of Income
Falling house prices, and marginally lower interest rates have already started to reduce the % spent on mortgage payment from 20.7% in Dec to 19.6% now
- Falling House prices will reduce the cost of mortgages over time, helping to reduce the %
- However, many mortgage costs are rising independently of base rates.
- Forecast for interest rates are mixed. Some see potential for higher rates.
I was wondering how much the tables would turn if you were to evaluate the historical % data with with the modern example using only one wage earner. Surely the % may actually be much higher. The point being that the % may have remained stable but the effort has doubled. Not to mention the cost of childcare and loss of free quality time. Or am I wrong?
Also at what date were spouses wages first used in mortgage calculations?
@trevor: Assuming this is household income then you are more than likely correct.