Inflation: UK housing affordability hits record low as prices outstrip earnings

·3 min read
Housing affordability now at its most stretched as property price inflation outstrips earnings. Photo: Reuters/Stephen Hird
Housing affordability now at its most stretched as property price inflation outstrips earnings. Photo: Reuters/Stephen Hird

The impact of surging house prices in in the UK throughout the coronavirus pandemic has reduced housing affordability to the lowest level on record, a new study suggests.

Analysis from Halifax found the cost of a typical home was £279,431 in the first quarter of 2022, while the average annual earnings of a full-time worker were estimated to be £39,402.

Britain's biggest mortgage lender said the cost of a typical home is now 7.1 times average earnings, the highest ever level as the cost of living surges.

Read more: House prices rise at second fastest rate on record

At the start of 2020, average earnings were £38,374 and the average house price stood at £239,281, putting the price to income ratio at 6.2.

House prices have since risen by 16.8%, with earnings up by 2.7% over the same period.

The research, based on data from the Halifax House Price Index, compares typical house prices to average earnings across the UK.

Image: Halifax
Image: Halifax

At a national level, the first-time buyer house price ratio is 5.6 times average earnings, compared to home-movers at 8.5, Halifax said.

However, first-time buyers also saw a squeeze in affordability as prices surged at a faster pace during the pandemic, increasing the challenge of raising a deposit without the benefit of a corresponding increase in the value of an already-owned property.

Andrew Asaam, mortgages director, 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.

"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.

Read more: UK inflation hits fresh 40-year high of 9.1%

"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."

Here are average house price to earnings ratios across the UK in the first three months of 2022, according to Halifax:

– London, 9.7

– South East, 9.3

– East of England, 8.5

– South West, 8.4

– East Midlands, 6.8

– Wales, 6.5

– West Midlands, 6.5

– North West, 6.1

– Yorkshire and the Humber, 5.4

– Northern Ireland, 5.1

– Scotland, 5.1

– North East, 4.6

Watch: Will UK house prices ever fall?