Wednesday, November 01, 2006

Abbey takes the plunge and no-one asks the right question

So the Abbey has finally gone official with it's smile and a wink policy of loaning out greater multiples of annual earnings for mortgages over the recommended guidelines. Everyone is shocked that this'll leave borrowers overstretched. Others wonder if the other big mortgage lenders will follow this trend. No-one it seems is asking why Abbey are having to do this.

Why are they having to loan greater and greater amounts to first-time buyers? Let's have a look shall we-

In 1992 the average weekly wage was £328, an annual wage of £17,056. The average house price was £61,400, a multiple of... 3.6.

In 2002 the average weekly wage was £392/week, an annual wage of £20,384. The average house price was £128,300, a multiple of... 6.3.

So why the disparity, has the number of houses decreased? Well no, to quote the National Statistics website

Between 1971 and 2004 the number of dwellings in Great Britain increased by 35 per cent, to 25.3 million
So the number of dwellings has increased, and yet their price still goes up at a rate faster then wage growth. Is it any surprise that people need to borrow more?

So why isn't anyone asking this question? Well it's obvious, if it gets discussed it'll turn out that house prices are overinflated. Prices might go down and we can't have that; can we?

0 comments: