Credit: Nigel Mykura/Wikipeda

Is it really getting easier to buy a house?

Research suggests homes are more affordable now than they were 18 years ago, though that may be about to change.

by Adam Gale
Last Updated: 03 Dec 2015

If you think that buying a house is getting harder (because it’s always getting harder), you may be mistaken. Research from Hamptons International suggests that it was actually tougher 18 years ago. 

The estate agent’s quarterly Affordability Index, which considers the income households have left to spend on housing after essential costs, indicates that for most of the UK (sorry London) houses have become more affordable over time.

Its score for the UK in the first quarter of 2015 was 135.5, up from 133.6 at the end of 2014 and 133.2 in 1997 (a higher number means it’s more affordable). There was a serious dip around 2007, when the index was set at 100, but since then the trend's been up.

Before you ask, this doesn't mean the perennial housing shortage is just hot air. It most definitely exists. The UK’s population increase since 1997 (around eight million) has dwarfed the growth in the number of households (about two million), which itself faces pressure from an ageing population leading to more people living alone.

As anyone on or remotely close to the property ladder will know, this has played havoc with house prices. According to Nationwide, the average price of a home at the start of this year was £188,500, more than double what it was in 1997 (£92,400 in today’s money).

Crucially, that’s far outstripped wage growth, which has been modest. The average wage was £25,000 in 2014, according to research by Measuring Worth – only £1,000 more than in 1997 once inflation is accounted for.

In fundamental terms, then, the ratio of house prices to wages has increased fairly steeply in the last 18 years. So how could it be more affordable to buy a house?

Well, in a sense it's not. The higher prices mean much higher deposits and much bigger mortgages. Monthly outgoings are only part of the picture. The reason those payments may be relatively less now is of course because of interest rates.

The UK’s base rate has been 0.5% since 2009, and this has kept mortgage payments unusually low in historical terms. Back in 1997, the base rate was between 6% and 7%. Today’s low rates are to an extent temporarily obscuring the longer term trend of higher house prices compared to wages.

Using national aggregate figures also obscures how affordable houses are in places where people actually want to be. Hamptons' research gives London a figure of 98 today, compared to 155 for 1997, for instance.

Housing may well be getting more affordable compared to last year as wage growth outstrips inflation and property prices rise only slowly, but the looming rise in interest rates is likely to more than reverse that positive trend. It’s just one of the reasons why Bank of England governor Mark Carney plans to tread softly when he eventually does step away from cheap money.


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