Comments: Still climbing the debt mountain

I find the figure of 3.1 salary multiple for first time buyers very hard to believe.

It would be interesting to see figures for the average price paid by a FTB to cross reference. Or the average salary of a first time. Logic says it just cannot be so. The average salary in London is in the high 20ks. Let's say to be generous that the average FTB in London earns a little higher than that, lets say 30k. That gives you 93k. Add in a generous 20k deposit and you've got. 113k. Now I defy you to find anything for that price in London save the odd 1br flat above a kebab shop in Tottenham.

So what is happening here? Maybe some buyers are wrongly falling into the FTB category through some kind of classification anomaly - buy to let landlords for example.

Or maybe first time buyers are getting massive deposits from parents. Where is much of this likely to come from? Mortgage equity withdrawal. So the FTB is actually more highly-geared than the 3.1 figure would suggest.

Either way, the 3.1 figure is highly questionable and worthy of investigation, perhaps by yourself or your newspaper David! How about commissioning a small poll of first time buyers? Let's get to the bottom of this!

How did house prices rise so much faster than wages? Were people borrowing 1x salary at the end of the 90s? It really does't add up!

Posted by El_Pirata at March 12, 2006 11:27 AM

The figures are on the Council for Mortgage Lenders' website: - and show a rise from around 2.4 back in 2000.

Posted by David Smith at March 12, 2006 02:09 PM

I agree with the previous comment. The only properties in London under 120K are low-end 1-bed flats above shops and in council blocks in the absolute farthest suburbs. It cannot be that all FTBs in London are aiming for those properties. I believe that most FTBs in London aim around 175K - ironically the national average - and to do so, are either a) couples working at investment banks, or b) in receipt of very significant deposits.

As has been pointed out elsewhere, the income multiplier for FTBs is only applicable to those FTBs taking out mortgages. If the average house price in London was 100x average income, but Branson Jr, Gates Jr and Mittal Jr each bought with a giant parental deposit and 3.1x their income as streetsweepers, then we would also have a reasonable-looking multiplier. Economists would sit, staring at the numbers, as an angry mob gathered outside, asking why the market should have priced ordinary people out of home ownership.

Posted by Alex at March 12, 2006 02:38 PM

Mr Smith's citations look to be based based on unsound data (on the data providers own admission)!

Lets have a look at the caveats on the CML website (the small print):

1. Totals shown are estimates grossed up from the sample of lenders reporting to reflect total market size.

"Grossed up"? As in "inflated"?

2. All figures from April 2005 onwards are based on Product Sales Data reported to CML. Figures pre-April 2005 are taken from the survey of Mortgage Lenders. There are material differences in both the reporting methodologies and the sample of contributing lenders for the different surveys. Figures after April 2005 are not strictly comparable with those up to that point.

"Not strictly comparable" is a byword for "meaningless" in statistical terms.

4. Average figures shown are medians, as this tends to better represent the poisition of the typical borrower.

Do they? If its a median of completed purchases, then it will only represent typical purchases for that period. NOT the position of the typical borrower. Again, the figures are hiding the fact that it's not what's happening, but what's NOT happening.

6. Affordability calculations are based on averages of calculations for individual transactions.

Again, see the comment for point 4. The typical borrower is not borrowing. It also ignores the statistical anomaly created by SELF-CERTIFIED mortgages where the borrower "declares" their income rather than proving it - remember those?

7. Prior to April 2005, estimates of the proportion of first time buyers and movers exclude cases where the previous tenure of buyers is not known.

This seems to be an arbitrary exclusion. The baby is being thrown out with the bathwater. An unwanted child perhaps?

Circumspection is always good when dealing with statistics and mortgage lenders and mortgage lenders' statistics! I know that it's very unfashionable to do so currently, but ...


Posted by Paul Owen at March 16, 2006 01:55 PM

You're well behind the game on this one - see the discussion we've had on the forum. And "not strictly comparable" means just that. "Grossed up" applies to pretty well all economic statistics; unless you sample everybody it can't be avoided.

Posted by David Smith at March 16, 2006 07:32 PM

"Not strictly comparable" might not detract significantly, and "grossed up" on it's own could still make the data relevant, but combined and factoring in all of the other caveats they point out, and the data you're left with isn't worth the electons expended.

What I'm getting at (and what has not been mentioned yet on the forum) is that if there were such a thing as a reliability index, this data would score very poorly.

That's not my opinion though as the CML do point it out under the data - if you take the time to read their unnaturally small writing!

Posted by Paul Owen at March 17, 2006 01:58 PM
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