Has the Credit Crunch made Homes Affordable Again?

publication date: Jan 14, 2010
 | 
author/source: Kate Faulkner, Property Expert and Author of Which? Property Books
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Has the Credit Crunch made Homes Affordable Again?


Affordability of property typically relates to how much the average property is worth versus what the average wage is. When this ratio is more than three or four, the statistical reports announce that ‘affordability’ is impossible for most people.

It is true that the cost of housing has increased in the UK and that despite the current circumstances, it is likely to increase again once the economy is on the road to recovery and people’s jobs seem more secure and the future more optimistic.
 
The big problem with affordability studies is that they take into account average statistics – which as anyone reading anything I’ve written on property before knows, this is rubbish.

For example:-

Average wage in Nottinghamshire where I live is: £19,000 to £26,000
(Evening Post and Annual Survey of Hours and Earnings 2005)

Average property price in Nottinghamshire is: £121,000
(Land Registry December 09 data)

So affordability studies would tell you that the ‘average salary earner’ on £19,000 would need to borrow between 4.6 and 6.5 times their salary to afford a property, and with the current stubbornness of lenders to return to 90-95% loans to value, which only require a 5-10% deposit, around £10-20,000 in deposit monies and a further few thousand to cover costs.

The studies would therefore conclude that it was virtually impossible to buy a property ‘on average’ and affordability was terrible and out of reach of most buyers.

The reality of course is very different. Having just researched the Nottinghamshire market for my BBC Radio Nottingham interview, I was amazed at how many properties were available for £60,000 or under. Some were one bed flats in good areas such as Wollaton, others were two to three bedroom homes in not the best of areas, but still ones I’d personally be happy to live with.

So don’t be put off by affordability studies if you are looking to buy. It’s your local market that’s important – not what the average statistics say!

If you are trying to save for a deposit and think you can’t, go to our page on ‘saving for a deposit’.


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