Average wages are £6,000 too low to buy a house in the UK

Buying a house in UK

Prime London is not the capital’s property hotspot

In this week’s pick of property investment news, research reveals that the average house price is now more than six times the average salary. It has also been predicted that mortgage debt held by pensioners will surge over the next 13 years, and house price data shows that Mayfair and Hampstead property value growth is lagging locations which include Walthamstow and Peckham.

Hometrack data proves every dog has its day

Walthamstow – once home to one of the country’s leading dog racing tracks – has produced incredible gains for property investors since the end of the financial crisis in 2009. Data from Hometrack, the house price monitor, shows that when it comes to property investment, Walthamstow has outperformed prime London by a very sizeable margin. It’s not the only once out-of-favour location to do so, either:

  • Walthamstow is joined by Peckham and Clapton with eight-year house price inflation of more than 130%.
  • Leyton and Hackney are both close behind with house price inflation of more than 125%.
  • Meanwhile, property prices in Mayfair, Hampstead and Fulham have increased by a meagre 85% to 90% in the same period.

However, as a word of warning to investors, Hometrack’s data shows that the two-year price stagnation, which has blighted prime London property, may be affecting other areas of London. It now predicts that property prices across the capital will grow on average in the low single digits. More affordable areas will produce the best growth, while prime London property prices are currently falling at around 5% per year.

While we’re discussing affordability…

Average house prices are now 6 times the average wage in the UK

Research from eMoov shows that the average house price is now 6.05 times the average wages in the UK. It means that most home buyers don’t earn enough to be approved for a mortgage based on 4.5 times salary. It calculated that the average wage is £6,111 too low to receive a standard mortgage offer based on a 10% deposit.

In compiling its research, eMoov compared Land Registry house price data with ONS wage data. Not surprisingly, it discovered that the biggest affordability gap is in London, where the average house price is more than 12 times the average wage of a Londoner.

In London, the least affordable area is Hackney, with an average house price 17.03 times the average wage of £33,800. Other areas with house price to average wage ratios above 14 include Brent, Haringey, Waltham Forest, Ealing and Harrow. The most expensive area outside London, when measured against the area’s average wage, is Purbeck in Dorset, where the average house price is 14.12 times the average wage.

The town where house prices are most affordable when compared to average wages is Burnley. Here, the average house price is just 3.43 times the average wage. The average wage of £23,500 is £7,739 more than is required for a mortgage of 4.5 times salary.

Of course, this research only takes into account a single wage. Most homes are bought with the financial muscle of two wages. However, simply saving the deposit is a struggle and we are witnessing more people delaying the purchase of a home. Consequently, people are getting older before they buy their home, and this is translating into higher levels of mortgage debt among pensioners.

UK pensioners set to double mortgage debt by 2030

Analysis by ILC-UK and the Building Societies Association has concluded that the mortgage debt held by pensioners is about to explode. Currently, at around £21 billion, the study forecasts pensioners’ mortgage debt will hit almost £40 billion by 2030.

Several factors lead to this conclusion. These include:

  • House price inflation
  • Tighter credit conditions
  • Low real wage growth

It also highlights home ownership demographics. Since 2009, home ownership has fallen:

  • From 53% to 38% among 20 to 29-year-olds
  • From 73% to 65% among 30 to 39-year-olds

Higher house prices and lack of supply are roadblocks to home ownership at younger ages. Combine these factors with high levels of student debt and low rates of real income growth, and it’s easy to understand why younger people are finding it difficult to buy homes in their 20s and 30s.

Consequently, more people will still owe mortgage debt when they retire. The report also predicts that almost 60% of all residential property wealth will be owned by the over-65s by 2030.

To stay abreast of all the property investment news that matters, contact one of our team today on +44 (0)207 923 6100. Ask about our newsletter. We give it to you straight. No BS. No hype.

Live with passion

Brett Alegre-Wood

About the Author

Brett has over 20 years experience in all facets of property, he owns various companies centred around property and is the driving force behind the education and training at Gladfish. His companies have sold over £850 million in UK and London property and he manages over 1200 properties through his estate agency chain. Today he shares his time between UK, Australia and Singapore. He is married to Arlene and together they have 4 kids.

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