Real Estate

UK house price affordability worsens over past decade

Houses in the UK have become increasingly unaffordable over the past decade, despite average price growth slowing significantly compared with the previous 10 years, analysis of data released on Tuesday indicated.

House prices in the UK rose 33 per cent from 2010-2019 compared with 117 per cent in the previous decade, according to a Nationwide Building Society report released on Tuesday. However, the increase still exceeded that of earnings, resulting in reduced affordability. 

Despite a downward trend since 2017, the house price-to-earnings ratio — a measure that indicates reduced affordability when it is high — stood at 5 in the fourth quarter of 2019. This was higher than 4.4 in the same quarter of 2009 and close to the all-time high of 5.4 registered at the end of 2007, Nationwide reported. 

An FT assessment of the Nationwide data shows that in the past 10 years, the house price-to-earnings ratio for first-time buyers averaged 4.5 across the UK. This is the highest of any decade since the Nationwide data was first gathered in the 1980s. 

“The pace of adjustment [in the house price-to-earnings ratio] has been very slow”, said Hansen Lu, property economist at Capital Economics. “We expect house prices to stay high relative to incomes for the foreseeable future . . . [which] will continue to constrain house price growth over the next few years.”

Bar chart of Average house price growth, % showing London house prices increased the most in the last decade

London house price growth was twice as fast as the national average over the past decade, despite a contraction over most of 2019. 

“The last decade has seen a significant widening in the gap between the least affordable and most affordable regions,” said Andrew Harvey, a Nationwide senior economist. 

London’s house price-to-earnings ratio averaged 7 in the past decade, the highest of any region and well above the 4.5 of the 2000s and 3.3 of the 1990s. The region with the lowest ratio over the past decade was Scotland, where it was 3.2.

Column chart of House prices-to-earnings ratio for first time buyers, average of quarterly ratios showing UK houses are becoming increasingly unaffordable

“For the property market, the cooling of price inflation triggered by the decision to leave the EU was arguably a net positive, especially in London and the south-east,” said Jonathan Samuels, chief executive of property lender Octane Capital.

But, he added, the high house price-to-earnings ratio “is still a massive obstacle for the majority of would-be homeowners”.

Housebuyers can at least enjoy record low mortgage rates. The cost of servicing the typical mortgage as a share of take-home pay shrank to 34 per cent over the past decade, compared with 36 per cent in the 2000s, according to FT calculations.

But that might not last for long. “Mortgage interest rates are more likely to rise than fall over the next decade, which will further constrain house price growth,” said Mr Lu.


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