Why comparing ‘Generation Y’ buying a home versus ‘Baby Boomers’ and measuring affordability of earnings versus property prices is wrong.

publication date: Mar 31, 2016
 | 
author/source: Kate Faulkner, Property Expert and Author of Which? Property Books

Why comparing ‘Generation Y’ buying a home versus ‘Baby Boomers’ and measuring affordability of earnings versus property prices is wrong. 

I find it pretty frustrating to read in national newspapers continued, what in my mind, are mostly inaccurate stories of affordability for first time buyers.

The idea that average earnings versus average prices are a way to measure affordability is completely outdated and pretty much irrelevant to those who want to buy today.

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Here is the latest article by The Telegraph which in my view is pretty misleading:-

Baby boomer vs Gen Y: homebuying in 1982 compared to 2016 
This compares a couple who bought in Wigan in Wigan in 1982 for £23,000 who were on £10,000 between them and paid off their mortgage in 13 years, they saved a £5,000 deposit to a couple buying Sussex on £60k, who saved £20k and can only afford a one bed flat for £250k in Brighton.

How on earth is this ‘comparable’?

Lets look at today’s price of a three bed semi in Wigan, according to the sold property price portal Nethouseprices.com they have recently sold from around £100,000. So 4.23x more than the price they paid.

Better still, interest rates in 1982 were, mortgage rates hit 15%.

That means the baby boomers were paying £232.04 per month.

Read - How to secure the right mortgage

For today’s equivalent, £5,000 deposit would be £15,000 in today’s terms, based on inflation. Borrowing at £85,000 would mean paying £406.78. If mortgage interest rates had been maintained these payments would actually be double, but as interest rates have fallen as far as 3% or less, the mortgage payments are pretty affordable.

So how much would these NHS accounting department and primary schoolteacher be earning today versus 1982?

Well, looking at NHS jobs, they look like £20-25k and for primary school teachers, it looks like around £25k. So they would be earning £45k to £50k to buy a £100,000 property.

That’s a proper comparison and actually it shows it is pretty comparable – no scare mongering stories here!

Sure in Brighton, the comparable is a bit different as prices have risen a lot faster than wages, but it just shows how badly this report represents the real picture for first time buyers, comparing buying in Wigan to Brighton is foolish and shows a real lack of understanding of how the property market works and who it is affordable for.

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The reality is for FTBs, using sold property price data from sites such as Nethouseprices.com is far more useful to research what they can afford than reading rubbish written about average house prices which has little relevance to them.

 


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