Home affordability improves at the fastest rate since 2011

Statistics and Reports

Possibly the single biggest lesson to be learned from the 2008 financial crisis, was that raw data only had meaning when it was put into context, hence the subsequent emphasis put on the concept of affordability, which essentially means looking beyond headline figures such as net income and loan-to-vehicle ratio and making sure that a prospective borrower actual does have a decent chance of paying back a loan (such as a mortgage) over the long term.

The good news for prospective home buyers is that over the last year (to February 2019), house-price inflation has been outstripped by wage inflation, meaning that property is becoming more affordable, in fact, affordability is improving at the fastest rate since 2011.

Good news for the UK as a whole, variable news for the regions

Overall, year-on-year asking prices increased by just 0.2% compared to wage growth of 3.4%, however as is generally the case in the UK, there were wide variations between the regions with Yorkshire and the Humber powering ahead with asking prices increasing by an average of 3.6% while Greater London languished behind with asking prices falling by 2.1%.

 This “north/south divide” was evident throughout the data with the North East and the West Midlands both showing strong growth, whereas the South East and East of England both saw prices fall. Although some might be concerned about the fact that house-price inflation in the north of England is above or close to average wage inflation, it is important to remember that the north of England has been transitioning from an industrial (and agricultural) economy to a much more “knowledge-based economy” and hence has seen robust wage growth. Likewise, when looking at the price drops in the south, it’s important to remember that the south has experienced rampant price growth over recent years, especially in the post-Olympic period and is therefore arguably due a “cooling off” period.

Affordability is not the only factor which influences sales volumes

From an objective perspective, it would seem logical that affordability would drive the housing market forward and increase sales volumes. In actual fact, in January 2019, sales volumes saw a year-on-year drop of 4%. The obvious explanation for this is Brexit or, more specifically, the uncertainty it is generating, which is manifesting itself to varying degrees across the country. In the north a combination of extensive new-building programmes, better affordability (due to lower prices and increasing wages) and an economy which is becoming increasingly global rather than “just” European, the housing market is still fairly brisk.

 In the south, however, the housing market is much more dependent on re-sales (as opposed to new builds) and at current time there are far fewer sellers putting their properties on the market, which is understandable given the combination of lower sales prices and the fact that sellers too may be uncertain about what Brexit may bring and therefore taking the view that it’s in their own best interests to wait and see which way the winds of change blow before they take a decision on what to do with their property.

Author Bio

Hopwood House are specialists in property investment, with a large portfolio of investment properties for sale across the whole of the UK in the student property, buy-to-let and hotel room investment markets.

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