US property mortgages still out of reach

Posted on September 12, 2012 · Posted in Uncategorized

The US housing market is still out of reach to the ‘everyman’ in the US.

Lack of available financing, stagnating salaries, and house costs which are still to high mean that renting will be the only option many Americans have available.

US property market

Image by serfs-up via Flickr

The typical US house loan is $360k off a $40k deposit. That deposit represents 11% of the price of the property. But some lenders are willing to accept much lower deposits in percentage terms, in some cases as low as 3%. On those terms the same $40k deposit could get you started in a home worth $1.2 million.

To the inexperienced homeowner that sounds fantastic: it’s a gateway to a property that would otherwise have been unaffordable.

But the lower deposit doesn’t mean lower repayments: the home actually remains unaffordable and the new owner is likely to have trouble keeping up the repayments.

The average takehome pay in the US is approximately $46k. So that $40k deposit represents almost a whole year’s salary. But once the deposit is down, the repayments are $2, 158 a month on $360k. That’s a huge slice of an average salary – almost two thirds. But for earners in dual income families, averaging $67k, it remains affordable.

Low- deposit loans aren’t going to give workers with lower incomes access to better housing. Instead, they’re going to trap the unwary into unaffordable payment schedules that negatively affect credit ratings and could leave families out of pocket and homeless.

There is an obvious comparison with the sub-prime mortgage crisis which helped trigger the financial slump of 2008. While sub-prime was characterised by loans made to people whose credit rating made them a bad risk, the same carelessness as to whether the borrower will actually be able to pay the repayments is at work in low-deposit lending too. More reading at

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