Affordability gap widens to record 7.6 times income
The data reveals that in 1997 the average house price was just 3.6 times the average income, which would have been well within reach of a young couple looking to buy.
On average, working people are paying around 7.6 times their annual earnings on purchasing a home in England and Wales, more than doubling over the last 20 years, according to the ONS.
The median price paid for residential property in England and Wales increased by 259% between 1997 and 2016; median individual annual earnings increased by 68% in the same time period.
The gap between the least affordable and most affordable parts of England and Wales has increased over the last 2 decades, with affordability worsening in all local authority districts.
Additionally, the least affordable areas are worsening at a quicker rate than the most affordable, making the gap between the most and least affordable areas widen.
The most affordable local authority in 2016 was Copeland, with house prices being on average 2.8 times greater than annual earnings, whereas Kensington and Chelsea was the least affordable with house prices being 38.5 times greater than annual earnings.
Shaun Church, Director at Private Finance, commented: “The yawning gulf between earnings and house prices highlights the extent to which the affordability crisis is worsening across the country. Limited access to mortgages at more than 4.5 times borrowers’ income means that, with the average house prices now 7.6 times greater than average earnings, buyers are having to find new solutions to get on the ladder – such as buying in couples, among friends or leaning on family for support.
“Growing numbers have found themselves excluded from the property market, but fortunately, low interest rates and mortgage repayments have gone some way to ease the pressures they face.
“Younger would-be buyers are the biggest losers from the growing imbalance between house prices and earnings. The data reveals that in 1997 the average house price was just 3.6 times the average income, which would have been well within reach of a young couple looking to buy. The same couple looking to buy today would face an uphill struggle, and many find now themselves looking to their parents for help with a deposit or to act as a mortgage guarantor.
“Prices and incomes have grown particularly out of sync in the London market, and it isn’t surprising that seven of the country’s ten least affordable areas are in the capital. In boroughs such as Kensington & Chelsea the typical house price is now a mammoth 38.5 times bigger than the average income, which puts getting a foot on the ladder out of reach of all but the wealthiest buyers.
“Such an imbalanced situation creates obvious temptations for policymakers to interfere with the market. However, it is absolutely imperative that they avoid destabilising the housing market for political ends, as was the case with the changes to Stamp Duty last year.”