A house now costs 7 times the average UK earnings, says Halifax

The cost of a home in Britain is now more than seven times average earnings, putting home affordability at an all time low, data suggests.

Since the start of the pandemic, property prices have risen 16.8%, while median income has only risen 2.7%, according to Halifax.

In the first three months of the year, the cost of a typical home was £279,431, while the average annual income for a full-time worker was estimated at £39,402.

This puts the home price to income ratio at 7.1, the least affordable level ever recorded.

Despite the increase in average house prices, there is still a lot of disparity between prices in different regions of the UK.

At the start of 2020, median UK income was £38,374 and median house price was £239,281 according to Halifax, resulting in a house price to income ratio of 6.2.

Despite this price rise, the demand for housing remains strong. Last year, the number of first-time buyers rose at a record pace, an increase of 35 percent, to reach an all-time high of 409,370.

However, rising prices are taking a toll on those trying to get their foot on the property ladder. The data suggests that 26 per cent of first-time buyers are now paying stamp duty, suggesting they are spending over £300,000 on their homes.

Meanwhile, the Bank of England is removing a key part of the affordability stress test that sees lenders take on borrowers’ finances with their standard high variable rates plus 3 per cent to be withdrawn.

However, although the stress test will be removed, the loan-to-income ‘flow cap’ will continue.

This is the multiple that banks will lend at based on someone’s annual salary.

This means that banks will continue to put a limit on the number of mortgages they can offer when someone borrows more than 4.5 times their salary.

House price inflation continues to outpace wage growth, driving the unaffordability index to record highs.

House price inflation continues to outpace wage growth, driving the unaffordability index to record highs.

Andrew Asaam, Halifax’s director of mortgages, said: ‘There is no question that the economics of buying a home have changed significantly in recent years.

‘High property prices and slower wage growth have combined to stretch traditional measures of housing affordability.

“However, we also know from the strong transaction levels that demand has remained extremely strong during that period, both from movers looking for larger properties and first-time buyers taking their first steps on the ladder. .

‘With interest rates rising as a means to combat inflation, it is unlikely that house prices will continue to grow at the rate we have seen recently. This should see the gap between average earnings and property prices narrow over time.

“It is also important to highlight the responsible approach taken to mortgage lending in this environment, with lenders performing extensive checks to ensure that repayments are manageable, even if interest rates rise sharply in the future.”

Rising house prices have led to an increase in the number of first-time buyers paying stamp duty, meaning more are paying more than £300.00 for their houses.

Rising house prices have led to an increase in the number of first-time buyers paying stamp duty, meaning more are paying more than £300.00 for their houses.

While average affordability rates have risen nationally, there are stark regional differences in home prices.

The south and east of England continue to account for a sizeable proportion of the least affordable local areas in which to buy a house.

In the center of the capital, Westminster and the City of London have the largest affordability gap, where average prices are 14.5 times average earnings.

This, however, is an improvement. Homes in these areas had an earnings to home price ratio of 16.8 at the start of 2020.

At the other end of the scale, Scottish locations dominated the list of the most affordable local areas. Inverclyde, in the west of Scotland, is the most affordable place to buy a home, with typical house prices just 3.1 times median earnings.

Pembrokeshire, Wales has seen the biggest deterioration in affordability in the past two years as buyer demand has skyrocketed in rural areas that offer more space.

The home price to earnings ratio has risen from 4.3 at the start of 2020, to close to the national average of 6.9.

Rachel Springall, finance expert at Moneyfacts, said: “Would-be homeowners will know that affordable housing is very scarce right now, and this is unlikely to be rectified anytime soon.”

‘There would have to be a significant increase in affordable housing choice to make a noticeable difference to supply issues.

“Housing prices are rising and are unlikely to slow anytime soon, meaning potential buyers may find they need to wait longer to build a warehouse.”

Speaking of the conundrum for first time homebuyers, David Hollingworth of L&C Mortgages said: “The question is twofold, will I be able to borrow enough and can I save enough from a deposit to make up the difference between the mortgage and the purchase? price?

‘The unexpected boost that the pandemic gave to housing pushed prices further away, the only upside was people were saving more, but of course we’ve had a bit of a turnaround there with the cost of living crisis , so nothing seems to be easier. .

“There just aren’t a lot of properties available and that mismatch with demand has only supported and driven prices over the last year or so.”

However, it says there are options available. While Help to Buy will end in March of next year, there is still time for buyers to take full advantage of the savings it offers.

Also, most lenders now offer something similar to a 5 percent deposit mortgage.

Hollingworth also suggests that while the government is unlikely to eliminate the stamp tax, the increase in first-time buyers paying the tax should lead to a banding review for the pool so more people can take advantage of the tax break. .

The best mortgage rates and how to find them

Mortgage rates have risen substantially as the Bank of England base rate has risen rapidly.

If you’re thinking about buying your first home, moving or remortgaging, or are a buy-to-let landlord, it’s important to get good, independent mortgage advice from a broker who can help you find the best deal.

To help our readers find the best mortgage, This is Money has partnered with independent broker L&C.

Our L&C-powered mortgage calculator can allow you to filter offers to see which ones best match your home value and deposit level.

You can also compare different fixed-rate mortgage durations, from two-year arrangements to five-year arrangements to ten-year arrangements, with monthly and total costs displayed.

Use the tool at the link below to compare the best deals, taking both fees and rates into account. You can also start an online application on your own time and save it as you go.

> Compare the best mortgage deals available now

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