Median incomes and housing affordability

Housing: get it while it's hot?  Source: Google Images.

Housing: get it while it’s hot? Source: Google Images.

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%

BUT WAIT

  1. 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.
  2. UK doesn’t do truly fixed mortgages: The nice things about US mortgages are:
    1. Tax-deductibility of interest (at highest marginal rate)
    2. 30-year interest rate fix.  Today’s rate is around 4% p.a. (Source: bankrate.com)
    3. 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.

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2 thoughts on “Median incomes and housing affordability

  1. One of my goals is to find a little plot of land somewhere that I can park a trailer and live mostly off the grid. I’m all for keeping your monthly payments as low as possible, so I’d like to be able to pay off the majority of that expense before I take it on… looks like several more years of saving for me first.

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