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Housing affordability falls to lowest level on record

Written by: Shekina Tuahene
Housing affordability is at its most constrained due to rising property prices during the pandemic.

During the first quarter of 2022, the average price of a home in the UK was £279,431 while the average salary was £39,402.

This put the house price to income ratio at 7:1 which is the highest, or least affordable, according to Halifax.

It means average house prices are now worth seven times more than the average person’s earnings. 

In comparison, at the start of 2020, average UK earnings were £38,374 and the average house price was £239,281, making the house price to income ratio 6.2 times earnings. 

Since then, house prices have risen by 16.8% while wages have increased by 2.7%. 

Market activity strong 

Although the average UK property is at its most unaffordable, activity in the market has remained healthy. Halifax said this suggested people were making “the numbers work for their circumstances”. 

For example, people are submitting joint applications and boosting affordability through a second income, while others have benefitted from the increasing value of their current home and the equity that provides them. 

Additionally, first-time buyer numbers rose at a record rate last year with a 35% increase to 409,370 – an all time high. 

First-time buyer struggle 

While the first-time buyer affordability ratio is not as tight at 5.6 times earnings, compared to home movers at 8.5 times earnings, this was also constrained because of the pandemic price surges. 

Halifax said this put pressure on the “challenge of raising a suitable deposit” without the advantage of an increasing value of an owned property. 

However, first-time buyers are also making do with joint applications or by drawing on other sources of funds such as the bank of mum and dad. 

Also, because the average age of a first-time buyer is now three years older (32) than it was a decade ago, they are more likely to be established in their careers and therefore have higher earnings. 

Regional variances 

While London has not seen the same growth in house prices that other parts of the UK have with a 5.9% uptick, the English capital still has the most expensive homes with properties worth 9.7 times average earnings. 

This is followed by the South East where house prices are 9.3 times earnings and the East of England where this is 8.5 times earnings. 

The North of England is the most affordable region with an income ratio of 4.6. 

Andrew Asaam, mortgages director at Halifax, said: “There’s no question that the economics of buying a home have changed significantly over the last couple of years. Soaring property prices and slower wage growth have combined to stretch traditional measures of housing affordability. 

“However, we also know from strong transaction levels that demand has remained extremely strong over that period, both from home movers seeking bigger properties, and first-time buyers taking their first steps onto the ladder.” 

He added: “With interest rates on the rise as a means of combatting inflation, it’s unlikely that house prices will continue to grow at the pace we’ve seen recently. This should see the gap between average earnings and property prices narrowing over time.  

“It’s also important to highlight the responsible approach taken to mortgage lending in this environment, with lenders conducting thorough checks to ensure repayments are manageable even if interest rates rise more sharply in future.” 

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