Record pay rises and the slide in property prices caused the biggest improvement in UK housing affordability in more than a decade, a glimmer of hope for young buyers who have been priced out by stretched valuations.
(Bloomberg) — Record pay rises and the slide in property prices caused the biggest improvement in UK housing affordability in more than a decade, a glimmer of hope for young buyers who have been priced out by stretched valuations.
Mortgage lender Halifax said that a decline in property values coupled with rocketing wages has improved housing affordability markedly even though prices hit record levels compared to earnings in 2022.
Its house price to income ratio fell from a record peak of 7.3 times average earnings last year to 6.7 in the second quarter of 2023. However, Halifax said that higher interest rates mean households are now also spending more of their incomes on mortgages, eating into some of the gains from house prices rising more slowly than wages.
It was the largest year-on-year improvement in affordability for the month of June since 2009 when the financial crisis triggered a major slump in house prices.
The figures add to evidence that the Bank of England’s interest rate hikes are taking the heat out of the UK housing market after the frenetic activity following the pandemic. Halifax said prices have fallen 2.5% to £286,276 ($364,440) since the peak in June 2022.
It will provide some hope for many first-time buyers struggling to get a foot on the property market after being priced out by the surge in prices in recent decades.
“We expect the market to rebalance as both buyers and sellers adjust their expectations to reflect higher costs and lower demand,” said Kim Kinnaird, mortgages director at Halifax. “It’s likely the gap between average earnings and property prices will narrow, which will be welcome news to first-time buyers, especially in areas which could offer better value for money.”
While affordability is being boosted by falling prices coming at a time when wages are rising at a record pace in nominal terms, the cost of mortgages has jumped for Britons.
Halifax said typical monthly mortgage repayments in the UK jumped by more than £200 in the last 12 months and by over £700 compared with the start of 2020. Mortgage costs now accounted for 35% of income in the second quarter of 2023, up from 30% in the same period last year.
Affluent parts of London and the South East, including Westminster, Kensington and St. Albans, were among the least affordable part of the UK.
In the capital, prices are 9.3 times average earnings, down from 10 a year ago. Parts of Scotland and Northern England, including Inverclyde and Hull, were the most affordable.
–With assistance from Andrew Atkinson.
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