Housing affordability hits record low as house price inflation outstrips earnings

The analysis – based on data from the Halifax House Price Index – compared typical house prices to average earnings across the UK.

In the first quarter of 2022, the cost of a typical UK home was £279,431, while the average annual earnings of a full-time worker were estimated to be £39,402. This puts the house price to income ratio at 7.1, the highest (or least affordable) level ever recorded.

At the start of 2020, average UK earnings were £38,374 and the average house price was £239,281. This put the house price to income ratio at 6.2. Since then, house prices have risen by 16.8%, with earnings up by 2.7% over the same period.

For historical context, the last time UK house prices experienced such sustained growth in house prices, leading up to the summer of 2007, average earnings were £30,508 and the typical house price was £194,207. This generated a house price to earnings ratio of 6.4.

Least and most affordable local areas

Despite seeing the slowest rate of house price growth of any UK region over the last two years (+5.9%), London remains by far the most expensive place to buy a home, with an average property price of £534,977. Based on the latest estimate of regional earnings, this puts the house price to earnings ratio at 9.7 – the highest of any UK region or nation.

This compares to a ratio of 9.0 at the start of the pandemic, and ‘just’ 6.8 back in 2007, when the city was yet to experience the boom in house prices which came to the capital in the years following the global financial crisis.

By contrast, the North East of England is now the most affordable region in which to buy a home, with an average house price of £162,692 and a house price to income ratio of 4.6. This makes it the only region of the UK with a ratio lower than 5. It is also more affordable than it was back in 2007, when the ratio was 5.8.

The South and East of England account for a considerable proportion of the least affordable local areas to buy a home. Westminster and City of London top the table, where average prices are 14.5 times average earnings.

At the other end of the scale, Scottish locations dominated the list of most affordable local areas. Inverclyde in the west of Scotland is the most affordable place to buy a home, with typical house prices just 3.1 times average earnings.

Pembrokeshire in Wales has seen the biggest deterioration in affordability over the last two years, as buyer demand has soared in rural locations offering greater space. The house price to earnings ratio has risen from 4.3 at the beginning of 2020, to now stand at 6.9.

Perhaps surprisingly, given relative costs, Westminster and City of London have seen the sharpest improvement in the house price to earnings ratio of any location since the start of the pandemic, falling from 16.8 at the start of 2020 to 14.5 this year. This further emphasises the slowdown seen in some prime property markets in major cities over recent years, with increasing buyer demand for larger properties in less urban locations.

Andrew Asaam, Mortgages Director, Halifax, commented: “There’s no question that the economics of buying a home have changed significantly over the last couple of years. Soaring property prices and slower wage growth have combined to stretch traditional measures of housing affordability.

“However, we also know from strong transaction levels that demand has remained extremely strong over that period, both from home-movers seeking bigger properties, and first-time buyers taking their first steps onto the ladder.

“With interest rates on the rise as a means of combatting inflation, it’s unlikely that house prices will continue to grow at the pace we’ve seen recently. This should see the gap between average earnings and property prices narrowing over time."