Today’s Bloomberg has an article about housing affordability in various US cities, with some harrowing statistics. Apparently an average Brooklyn residence would cost 98% of median income in mortgage payments (10% down payment; 30-year fixed mortgage).
So that got me wondering about London. A quick calculation, using the same methodology as RealtyTrac in the Bloomberg article:
- London median income: £23,800 p.a. Source: London Datastore
- London median house price: £322,000. Source: same as above
- Average mortgage payment: £1,770 per month. That’s a 90% LTV, 25-year 5.5% mortgage. Source: MoneySupermarket
- Therefore, mortgage payment as % of median income: 95%
- A median income couldn’t borrow that much: The same mortgage calculator limits borrowing to around £100,000 for the median income. Smart, seeing as 95% would be taken by the mortgage payments. I assume this would be the same as the US.
- UK doesn’t do truly fixed mortgages: The nice things about US mortgages are:
- Tax-deductibility of interest (at highest marginal rate)
- 30-year interest rate fix. Today’s rate is around 4% p.a. (Source: bankrate.com)
- Therefore: if UK mortgage rates went up (and let’s be honest: they’re unlikely to go down much from here), the median income would quickly be insufficient altogether.
In sum: I guess we already knew this. Housing is VERY unaffordable. I’m sticking with other options.