Affordability

Affordability can be described as being a measure of being able to comfortably pay the monthly mortgage repayments along with the applicants other committments and is assessed as being a multiplier of the applicant(s) income(s) for their domestic mortgage. Thus, usually, a lender will ask for proof of the applicants income and will have stated that the amount of the mortgage should be say 3 times the income. Generally 3 x joint incomes or sometimes 3 x the main income and once times the secondary income.

It may be that there times when applying for a self certificated mortgage and where the applicant has just to verify that they have the amount of income that's needed that this does away with having to declare their exact incomes. These days however, the lender needs to ensure that the mortgage is manageable as otherwise the borrower won't be able to pay and the property may have to be repossessed and auctioned off. Under these circumstances, the lender would be a forced seller which would result in getting a poor sale price when the property would be disposed of usually through auction.

The real point of writing about this is that where property prices climb too quickly and prices are booming, to make money in property, you have to have an easy market and have someone to sell to. There won't be many prospective purchasers if the prices are too high and there's no one else to sell this to. If this is the case the party stops and the market has to wait till affordability has improved and bottomed out to achieve more equilibrium and then the buyers will return.

It's pretty obvious really. However the measure of how fast prices are

rising and a good indicator of when NOT to enter the market is when these levels are stated as being between 5 and 7 times earnings. The lenders see this as being not sustainable and whilst people do borrow at those levels, most investors might do well to find other homes for their money for a few years.

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