Bog Roll ::

It's Not Magic, It's Work!

14 May 2009

Price Ratios

There are a couple of interesting house price ratios. The first is the ration of gross salary to house price, which in the UK is normally no more than 3:1 (salary:house price) as normally lenders will only lend a maximum of three times the gross salary of an individual.

The second interesting ratio is the ratio of annual rent to price of the house. A normal ratio is 14:1 (rent:house price). This is important because rental rates are more liquid/current than sale prices and so more accurately reflect the real price of a house, not the vendor's "dream" valuation.

On both counts UK house prices are still way over the normal level you would expect. Where I live a two bedroom house is available to rent for £8400 pa, giving a £117 600 sale valuation, a typical salary where I live would be £30k pa, giving a valuation of £100k (30x3 + 10% deposit). However you calculate the normal value of a property, it's an awful lot less than the the current asking prices of £180-200k. Is it any wonder that nothing is selling? and prices continue to fall...?