How do UK house prices compare with typical earnings across regions in the UK
The pandemic property boom means that house prices have never been more unaffordable, with the average home now, when compared with earnings, standing at a ratio of 5.5, above the previous high of 5.4 in 2007 just before the housing market crashed and as the graph below highlights well above the long-run average of 3.8.
Nationwide also reports that while there continues to be a significant gap between the least affordable and most affordable regions across the UK, it has remained broadly stable over the last year. London, by far, continues to have the highest house price-to-earnings ratio at 9.0, although this is below its record of 10.2 in 2016.
According to data, a 20 per cent deposit is equivalent to 110 per cent of average income; this is a record high and up from 102 per cent a year ago. Scotland takes an average of 6 years, being the most affordable region, and London is the most unaffordable, with average years taken to save a 20 per cent deposit taking close to 16 years. The graph below highlights the regional differences across England and Scotland.
Robert Gardner, the chief economist at Nationwide, says there has been a significant increase in house prices in recent years. Since the start of the year, significant increases in mortgage rates have also pushed a typical mortgage payment as a share of take-home pay well above the long-run average.
Economists predict that borrowers today will likely pay 40 per cent of their take-home pay servicing home loans. However, this is not the highest percentage, as homeowners in 2007 paid 54 per cent of their take-home pay on mortgages and 64 per cent of take-home pay in 1989, just before the global financial crisis. Bank of England’s base rate in 2007 was 5.5 per cent and 13.75 in 1989, compared with 2.25 per cent today.
Last month house prices were broadly flatlined, the first month in which they have not risen since July 2021. They were still up 9.5 per cent yearly, which is strong. However, headwinds are growing the market will be slow in the coming months.