Nostalgia isn’t what it used to be, as they say, and in an era of creeping inflation, job insecurity and the menacing spectre of tax rises, it’s tempting to look back and reminisce about buying a 5-bedroom Georgian house in Hammersmith for £2000, as a friend of mine did in the 1960s.
Earnings were proportionately lower in that era, so all things being equal, it’s similar to the contemporary salary/mortgage ratio of ‘3 to 3.5 times salary’.
Now, a figure of 6.5x salary is bandied about and there has been a collective clutching of pearls at the thought of such lending profligacy.
The 2008 crash still lingers in the market limbic system and at first sight, it looks reckless and foolhardy. Worse, it resembles a typical bull market stunt that happens just before a crash.
DEVIL IN THE DETAIL
It’s worth digging below the surface to see if the devil is actually in the detail.
In days gone by, lenders (that is, building societies) based affordability on one income, which was almost always that of the husband.
The typical rule was: up to 3 or 3.5× the main (male) earner’s income, or sometimes 2.5× the main income plus 1× the secondary income.
The man was assumed to be the main, full-time earner and there were much fewer single-income households, compared to the 21.71million quoted by the Office of National Statistics that we have now.
“Times have changed and women have now entered the workforce en masse.”
Of course, times have changed and women have now entered the workforce en masse.
Part-time female work before the 1980s was considered ‘pin money’.
Women’s careers tended to be in that of public service (ie teaching) and anything ‘self-employed’ was badly paid and inconsistent.
“Two World Wars changed women’s employment status forever.”
Two World Wars changed women’s employment status forever, as they became engineers, mechanics and munitions operatives.
Girl power is not only winning the income race but overtaking the boys in terms of earning power. The so-called gender ‘pay gap’ that we heard about for years is now in reverse.
Although median wages still show a small ‘gender pay gap’ between men and women per hour of full-time work, The Telegraph (6th November, 2025) reports that women are beating men to £100k salaries before the age of 30.
THINGS CHANGE
Nothing is more certain than change and social norms are a prime example. Societies rise and fall, and the economy – ergo house prices – reflects these fluctuations.
The late 1980s underwent seismic shifts and a few big trends changed the borrowing landscape forever. Women entered the workforce in large numbers.
Liberated from the kitchen sink and lower-status (though valuable) jobs like teaching, they made serious inroads on the more lucrative professions.
BUOYANT OPTIMISM OF THATCHERISM
Lenders started accepting both incomes in full. Then came the buoyant optimism of Thatcherism, where we shook off the grim 1970s ‘winters of discontent’ and the embarrassing IMF bailout.
The dream of property ownership was embraced by millions, thanks to Mrs Thatcher’s property-owning democracy. The concomitant ‘boom’ saw prices rise much faster than wages, so two salaries were needed, especially as interest rates topped 10 –15%.
So, by the 2000s, ‘5× salary’ was often shorthand for combined household income. Lenders had to factor in two incomes to the whole mortgage equation.
What that means in real terms is that if a household now earns, say, £50,000 each (£100,000 combined), under the previous system of the 1980s: 3.5 × £50,000 = £175,000. Today, the figures would be: 6.5 × £100,000 = £650,000.
At first glance that’s nearly four times higher borrowing capacity. However, taking into account the previous arguments, it’s only about double if you compare per earner:
- £650,000 / 2 = £325,000 per person
- £325,000 ÷ £100,000 (combined) = 3.25× per person
THE MORE THINGS CHANGE, THE MORE THEY STAY THE SAME
Today’s 6.5× joint income roughly equates to 3.25× each individual’s salary, which is almost identical to the old ‘3.5× ‘main earner’ rule.
Sometimes, the more things change in the housing market, the more they stay the same.
The lending space, however, has undergone a radical shift.
Most households, unless they’re exceptionally well-off or prepared to make a huge sacrifice, are necessarily dual income, rather than just the husband, as of before.
And lenders’ criteria have had to be radically altered. Whereas before it was assumed that both earners had stable employment, this can no longer be taken for granted.
Add to that the pressure from higher house prices, where lenders must extend to keep borrowing capacity aligned with market values.
The result is greater risk: if one partner stops working (parental leave, redundancy, illness), affordability is reduced. This was a hazard that the old one-income model didn’t have to confront.
“Is this number really radical, or merely an adjustment to social trends?”
Is this number really radical, or merely an adjustment to social trends?
But before assuming the 6.5 figure is higher than a weathervane on the Shard, look below the surface.
It’s not really that scary – in context, it’s merely a reflection of social trends rather than financial recklessness.
What is novel is that the 6.5x is applied to a joint income, even when both earners may be self-employed and do not have stable jobs or cast-iron security.
The infamous 2008 crash lingers in the memory, and anything less than a guaranteed income can make households more vulnerable to shocks.
ANTHROPOLOGICAL NOT ACTUARIAL
The issue is more anthropological than actuarial. In effect, it’s not the ratio that’s ‘doubled’ in risk, it’s the structure of income in households that’s changed.
In the words of Warren Buffett, just about the highest authority on the planet where risk is concerned: ‘Risk comes from not knowing what you’re doing.’
At heart, lenders are a prudent bunch and are adjusting to the winds of social change that have swept the landscape, rather than lumping all the risk on one person.
