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Renting set to boom as buying is even less affordable

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Thu 28 Mar 2024

Renting set to boom as buying is even less affordable

The average house prices in England was £290,000 last year, some 8.3 times average annual earnings.

This was actually down from 8.5 times from the previous 12 months, according to the Office for National Statistics.  

An ONS spokesperson says: “These ratios are similar to 2022, and represent a return to the pre-pandemic trend after a large increase between 2020 and 2021,” says the government’s data body.  

“The sharp price increases in 2021 coincided with increases in the volume of sales and changes in stamp duty land tax and land transaction tax. Therefore, the ratios in 2022 and 2023 are a return to the long-term trend, following the sharp increase in 2021.”  

However, the figure remains well above the threshold the ONS uses of five years of income “as a broad indicator of affordability” for average home.  

In Wales, an average house sold for £196,500 last year, easing to 6.1 times average annual earnings from 6.4 times over the same period. - again, well above the affordability benchmark.

The least affordable area of England and Wales is, perhaps unsurprisingly, Kensington and Chelsea, where property costs 34.2 times earnings.

Sarah Coles, head of personal finance, Hargreaves Lansdown, says: “Houses are frankly unaffordable at the moment. The pandemic property boom ratcheted up the cost of property, and while wages are growing faster at the moment, they fell so far behind house prices in recent years that there’s acres of ground yet to be made up. It means buyers in England are having to find an astonishing 8.3 times their income to buy a home.

“While earnings have doubled since 1997, house prices are four and a half times higher.

“For first time buyers, life is even tougher. For someone on the National Living Wage, working 37.5 hours a week and buying the average home, they would need to spend 14 times their annual earnings.

“When a household spends 25% of its after-tax income on the mortgage, it’s considered to be at risk of falling behind on payments. 

“[Hargreaves Lansdown found] that, by the end of 2024, one in four people with a mortgage will be in this position. Meanwhile, 390,000 will have an unaffordable mortgage and unsustainable spending, and 34,000 will have all these problems – and not enough savings to protect them.”

Coles says buyers are increasingly stretching their mortgages over longer periods to make the monthly payments more affordable. 

The average first-time buyer mortgage has now stretched to 32 years. 

She continues: “By paying the debt for longer, it means paying more interest, so the mortgage is more expensive overall. You also need to consider the fact you will be paying the debt off later in life. 

“If you had planned to use your 50s and 60s to patch any holes in your retirement finances, it’s worth bearing in mind that this will be much harder if you’re still carrying a mortgage at the time.

“If you’re planning to buy, the best protection from being overstretched is to build as big a deposit as you can manage.”