Interactive Investor

UK house price to income ratio underlines struggle facing homeowners

27th July 2023 11:27

by Myron Jobson from interactive investor

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interactive investor comments on the latest ONS housing purchase affordability data.

Housing affordability 600

Commenting, Myron Jobson, Senior Personal Finance Analyst, interactive investor, says: “House purchase affordability saw a modest improvement in the home nations, with the exception of Wales, in the financial year ending 2022, after the stamp duty holiday fuelled a spike in the average income-to-house price ratio in the previous year. While the stamp duty holiday sugar rush has abated, buyers continue to be hit by some of the worst levels of housing affordability, which really highlights the tough task facing today’s aspiring homeowners.

“While all four countries within the UK have sold for more than five years' worth of average household income since 2017, the affordability squeeze has been significantly more pronounced in England. This reflects differences in economic conditions between regions, with some areas experiencing higher wages and job opportunities, while others may have lower incomes and limited employment options. Housing affordability can also be affected by the balance between housing supply and demand in a particular region. Areas with a high demand for housing, but limited supply, can lead to increased prices and decreased affordability.

“Housing affordability is determined by mortgage rates, house prices and wages and all three factors aren’t playing ball for would-be buyers at present. House prices, while falling, remain at levels many can’t afford. Meanwhile, the recent uptick in mortgage rates has pummelled buyers, and inflation is chipping away at the real value of home deposits and continues to outstrip wage growth.

“The good news is the fall in inflation, led by the dip in the cost of wholesale energy, should provide relief to squeezed budgets and aid deposit-building efforts. House prices are expected to continue to fall this year, which would also help matters.”

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