House Price Talk Back To Haunt Zone 3

Rachel Holdsworth
By Rachel Holdsworth Last edited 103 months ago
House Price Talk Back To Haunt Zone 3

letby_14Oct09.jpg Joy. The chattering classes' obsession with house prices has not been beaten to a bloody pulp by the recession, and here's a new piece of research suggesting first time buyers in London would need a salary of over £93k to buy an "average priced property".

Woah! That's a lot of money. Maybe we should all take up jobs as reviled bankers if we're to escape the tyranny of landlords? The Standard wails that in boroughs like Barnet, where house prices are near average, salaries are a mere third to a quarter of this magic figure.

Thing is though, how many first time buyers want an "average priced property"? For around the London average of £360k, you can get a four bedroom semi near New Barnet station or a flat in a brand new development with underground parking in Golders Green. Alternatively, how about a two bedroom maisonette for £185k, a more reasonable target for a couple? Moving out of the borough, maybe a two bed in Acton for £150k? Something in a 1920s block in Lewisham for £140k? Seriously, are the people who worry about house prices ever the people who are actually buying them? Or capable of having a quick web search? (Image by Matthew Gidley from the Londonist Flickr pool)

Last Updated 14 October 2009


It’s a perfectly reasonable comparison to weigh average wages against average house prices, it is also perfectly reasonable to conclude having done so that house prices are totally disconnected from earnings, which would lead you to conclude that the housing market is still an asset bubble.

The whole concept that a first time buyer should first buy a starter home and then ‘work’ their way up the ladder is based entirely on the fallacy that house prices will always go up, steadily increasing the first timer’s equity, allowing them to trade up in the future.

As the current financial crisis has painfully shown house prices go up as well as down. Average house prices should, in a rational market, bear at least some resemblance to average earnings. The current market remains irrational, this is bad news.


Well noted, Rachel. This 'research' is transparently fatuous. To quote:

"... the average price in the capital is £362,810. For a first-time buyer to get a 90 per cent mortgage on the basis of it being 3.5 times their salary, the wage required is £93,294."

There are two fundamental assumptions here. Firstly, the assumption that a first-time buyer will be attempting to buy a £360k property. Obviously, in the vast majority of cases, they won't – preferring instead to buy one that, oh I dunno, they can actually afford.

Secondly, the assumption that first-time buyers will be seeking a 90% mortgage. Now this is where it gets more tricky. Most prospective buyers know full well that a higher deposit is preferable when getting onto the housing ladder, and that a 90% mortgage is really a worst-case option.

Really, this 'research' would be better off concentrating on the quality of the homes that are affordable for first-time buyers (rather than looking at a facile arithmetic mean of the prices of all London properties), and then reporting that first-time buyers need to have a load of savings in order to get a mortgage that they can afford.

But that, of course, would make far less sensationalised headlines. And that won't do at all.


I wonder how much the "average" house price is skewed by the top few percent of the market? More interesting would be an analysis that took out those properties over - say - 1 million, that are out of the realistic range of most buyers. Or at least let us know how much of the market those sales make up...