The year 2022 witnessed an extraordinary escalation in house prices, pushing affordability to its limit. In England, the average house was priced at £275,000, while the mean annual disposable household income stood at £33,000. This indicated that houses were costing an overwhelming 8.4 times the income.
According to the Office for National Statistics (ONS), an affordability threshold at five times earnings has been exceeded continuously since 2017. Strikingly, only the top 10% of English households can manage to buy an average home within five years of their income. This proportion stands at 30% for Wales and 40% in Scotland and Northern Ireland.
London takes the crown for the least affordable property market, with the average property costing a staggering 13.9 times the average income. Following closely, South East and East of England register 9.8 and 9.3 times respectively, while in the South West the ratio stands at 8.9.
Sarah Coles, the head of personal finance at Hargreaves Lansdown, expressed her concern. She said, “In 2022, runaway house prices made a mockery of housing affordability. Buyers in England were stretched to breaking point with the average house worth more than eight times their income, and a whopping 14 times in London. With mortgage rates previously low, this kind of financial stretching was feasible, but the reality of remortgaging at much higher rates will hit hard.”
Coles warned that households spending a quarter of their post-tax income on their mortgage are at risk of payment defaults. “Over the next year, 26% of people will be in this precarious position,” she explained. Alarmingly, among these ‘at risk’ households, 230,000 have cash savings that barely cover three months of essential spending, putting them in the ‘high risk’ category. An additional 470,000 with unsustainable spending are at ‘critical risk’.
Coles advises prospective buyers to build a large deposit as a protection measure. She emphasised, “While affordability is so stretched, the less you have to borrow, the less vulnerable you will be.”
Andy Russell, CEO of Wealthify, reflected on the ONS Housing Purchase Affordability Statistics. He acknowledged the challenges young people face while trying to get on the property ladder. However, he suggests there’s a glimmer of hope in regions where affordability has shown slight improvement.
He advised, “Those who have managed to save a considerable deposit may find it best to weather the current volatility and make the most of higher savings rates. Despite the rising cost of living and increasing mortgage rates, young people just starting their saving journey should persevere, as the economic climate may change favourably in a few years.”
Russell recommends thinking about how best to grow money over the next few years. He stressed, “If you have a few years to go, investing may be the right option to build up that deposit, protect your money from inflation, and allow it to grow until you are ready to use it to achieve your goal.”
The ONS has issued a release on housing affordability: Housing purchase affordability, UK: 2022 – Office for National Statistics (ons.gov.uk)