Sir Howard Davies: Not that difficult to buy a home, says NatWest chair

Does he live in the real world? I am 36 years old and know I will never been able to buy. I am single, no chance of getting a partner. It is impossible to buy alone. The next government needs to build and build.

Does he live in the real world? I am 36 years old and know I will never been able to buy. I am single, no chance of getting a partner. It is impossible to buy alone. The next government needs to build and build.

Have you considered relocating? It is easy to buy a house. However that is in stark contrast to the expectation of most which goes along the lines of "I want to be able to afford a house in the area I want to live." That expectation has never been realistic.

But equally buying a house as a single person has always been difficult because you are competing against the buying power of double income couples. But saying that there are plenty of cheap houses out there but you have to compromise.

I would not quite go that far unless we are talking about extremely deprived areas.

Here in West Yorkshire (ignoring council estates) you can indeed get a reasonable 2-3 bedroom house for £100-150k however that still requires a salary of ~£30-40k+ if mortgaged unless we are talking about a very large deposit. Your still looking at having a salary on the upper side of average.

But that has always been the case. Back in 2000 when I started working decent houses were in the £80k - £120k bracket. And I was on £14k and interest rates were at 6%. Totally unaffordable to me. The days when a single income could buy a house is long gone and single low incomes have never been able to buy a house in most of the UK.

The average house price was 4.2 times the average income in 2000. Around 60% of 25--34 year olds were home owners.

House prices are now 8.3 times the average income. Home ownership for the same age group has dropped below 40%.

Houses have become far less affordable.

But that has always been the case. Back in 2000 when I started working decent houses were in the £80k - £120k bracket. And I was on £14k and interest rates were at 6%. Totally unaffordable to me. The days when a single income could buy a house is long gone and single low incomes have never been able to buy a house in most of the UK.

That is true to some degree. The young are also the most fiscally profligate. If i had the same level of fiscal dicipline in my twenties as i do now then i probably would have owned a home before the age of 30 simply because of the deposit size i would have amassed. Instead, i rarely saved anything.

Oh - don't get me wrong. I think young people have it much worse how than before. House shares, flats and other places to live were easy to come by and reasonably affordable. But like you say, it ultimately boils down to financial discipline. My first job paid £9k a year but I still managed to save £200 a month. If you can save £400 a month in five years you have a hefty deposit.

When he said “I don’t think it is that difficult [to buy a home] at the moment” I don’t think he meant that everybody in the country can afford one easily. Obviously it is difficult or even impossible for some people; that has always been the case.

“Difficult” is a relative term, so it’s just a matter of what he’s comparing it to. Looking at the big picture, it is definitely easier to buy a home right now than it has been over the past year and a half or so due to lower interest rates, some depression in prices and more mortgage approvals taking place.

What he says isn’t necessarily wrong. It’s more a case of poorly chosen words that are easily taken out of context to mean “Out of touch, old rich guy doesn’t realise how much some people are struggling”

Not really, £400 per month for 5yrs only gets you a deposit of 24k. On a standard 75% LTV that would only work on a property worth 100k, this is low throughout the UK and miniscule in London. The big kicker is the income multiplier on mortgages - you basically have to be in a couple and both to be earning solid salaries to get a mortgage on a flat in London.

Those looking at average house price to income ratios are also missing half the story. Yes, house price to earnings ratio has roughly doubled for the current generation compared to the last, from about 4x to 8x. But the other half is that the typical deposit on a first time buyer's mortgage has jumped from 5% to 15% over the same period. So when you put the doubling in HP to earnings ratio together with the deposit ratio increase, the current generation generally need to save 6x more vs income to buy today than the previous generation.

But to answer the original question, yes he's certainly a bit out of touch, but then if you were to guess which group of people would be out of touch, senior bankers would be most people's first guess so I don't think anyone should be too shocked at what he's said. The issue is really the combination of poor housing supply, stupid demand-side stimulus policies in the past, and terrible real wage growth (driven by low productivity growth). I generally think it's becoming the norm to live at home for the first few years of working to build some deposit and ramp up the wage multiplier in the mortgage calculation. But given lots of people move away from home after graduating and wide salary variance amongst graduates, this creates a very uneven playing playing field where some grads are absolutely fine but others end up in the rental sector perpetually.

Do first time buyers really have to get a 75% LTV mortgage these days?
https://www.nationwide.co.uk/mortgages/95-percent/

Agreed regarding duel income buyers. Trouble, is there are lots of couples on roughly average earnings e.g. circa £35k each giving a nice £70k x 4 = £280k which in most parts of the country is a healthy pot on which to buy.

All of this really depends on the assumptions used.

Yes, 95% LTV mortgages do exist. But they are neither typical (average FTB deposit is about 15%), nor desirable - if you're getting a much bigger mortgage with a 95% deal, you get clobbered with much higher monthly payments (esp in a higher interest rate environment as it raises the loan principle to a much larger degree, so costs you exponentially more over the lifecycle of the mortgage), which can make them unaffordable to many. It's really a pick your poison decision, have the pain of slowly building a deposit while renting at extortionate prices or have the pain of much higher monthly payments. Evidence shows that most go for the first option, so while it's certainly possible to get 95% LTV deals, few do because they're fairly undesirable for many reasons. And none of this points to it being "not that hard to buy a home", it suggests that it's possible but very difficult.

On your pay point, I wish average earnings were 35k per year, the UK would be a much more prosperous country. Unfortunately, you only get to the 35k figure by making some generous assumptions. The 35k figure is if you only count full-time workers, and you exclude all self-employed workers (who on average earn a fair bit lower than employees), so the 35k number has an upward bias on two counts. Now, one could argue that if your goal is to buy a home then maybe you shouldn't be part-time and/or self-employed as it lowers average earnings, but there's little point discussing motivations, the reality is that people work in lots of different ways for lots of different reasons and only focusing on the highest paid group (full-time employees) and characterising that as the average UK salary is misleading.

When you look at the average over all employees (weighted avg of FT and PT) in the latest ONS ASHE survey, you get a figure under 30k, though this still excludes the self-employed. The latest ONS RTI estimate of median employee pay, which is much more timely than ASHE and uses actual PAYE data, puts it at under 28k - and this is still excluding the lower earning self-employed. A bigger issue is that you're using UK-wide earning measures, which get a very hefty bump from London and SE England pay, then are using that to judge non-London & SE housing affordability. If you were to look at average pay (excluding London & SE), it would be a fair bit lower than the aforementioned figures which paints a fairly depressing image I know. In reality, you're probably looking at 25k as average salary and given about 20% work PT, this averages to 1.6 FT salaries between a couple, using your maths this would net to about 160k and on a 95% LTV mortgage, the deposit barely boosts this at all. And if you want to add another layer of complication, average salaries generally covers those aged 16-64, but the age where you might buy a home is normally in the 25-35 period, where average salaries are even lower.

This all isn't to say that it's not possible to buy a home, just that I think affordability-wise it is genuinely quite difficult to buy a home, so for someone who's responsible for giving out the mortgages to say it's not that difficult, feels a bit out of touch. In reality, it's likely an excuse for NatWest not lowering the rates on their mortgage products as quick as rivals haha.

I think you are still missing my point. 30% of the population earn £35k or more and a lot of those people are also in couples and are therefore able to afford the dwindling supply of houses on the market.

Part timers, single people and low income people have never had a realistic chance at getting on the housing market. Nothing new there. But 95% mortgages are a way in. I bought our first house on a 95% mortgage and the payments were about the same as rent. And we were on 6.03% fixed interest rates after the 2008 crash!

I think you're missing the point. Even if 30% earn 35k+, most of those will be people who already own a home. When we're talking about the groups actually buying homes, it's usually the 25-35yr old group who earn much less than the average, and a large proportion of those in that pay band are only in it because they live in a very high CoL area and so don't have the option of 200-300k houses. This is why I said that looking generalized salary averages isn't particularly helpful, because both wages and house prices differ wildly for different groups, hence does affordability.

What's also not helpful is the way you often see slightly older folk remark that mortgage interest rates used to be much higher back in the day and so on. The interest rate is only part of the equation of affordability. Affordability is really the nexus between rates and the size of the mortgage. So while average rates are now lower than in previous generations, house prices are exponentially higher, and so a mortgage nowadays can have a much lower rate but cause a much bigger drag on disposable incomes because the mortgages have to be so much bigger. It's actually possible to calculate the affordability-adjusted interest rate on mortgages, and this showed that the effective interest rate for households over the last year was the highest since 1989/1990. So if that doesn't scream that affording a house is difficult atm, I'm not sure what will.

Oh - I get all of that and you are right. House prices are higher now and it is difficult in many areas to buy a house. But that is the point. There are just more areas now than there were where it is difficult to buy a house. But not all areas. And that is my point. Everyone wants to buy a house in the area of their choice, but that has never been realistic. Yet it seems that many are not prepared to compromise by moving to an area where it is easy to buy houses.

The sad thing, is if potential homeowners did relocated to areas of low housing prices, those areas would massively improve faster than any amount of levelling up intervention from the government.