The income-to-property price ratio is skyrocketing: Here's what that means for first-time buyers

Housing affordability continues to be a major concern across the UK. Here's where the gap is widest, and what experts predict for 2021.

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With the UK house prices surge only just beginning to show signs of subsiding following a pandemic-drive boom, prospective buyers now find themselves navigating a radically changed property market. With record-breaking price rises characterising nearly all of 2020, any pre-pandemic hopes of the gap between house prices and incomes narrowing were dashed. In fact, the situation for first-time buyers in particular is now the worst it's been for a decade. 

The latest research by lettings and estate agent, Benham and Reeves, has revealed that current affordability across the UK property market is at its worst in 10 years, with the average house price to income ratio at its highest levels since 2011. The research shows that despite strong wage growth resulting in the average net salary hitting £25,123 in 2020, an average house price of £249,633 places UK house price to income affordability at 9.94 (house price divided by income). This means that house prices are now 10 times the average salary, with the average deposit required reaching an entire year of average earnings.  

couple looking in an estate agent's window

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Unsurprisingly, affordability in London are the worst anywhere in the UK – houses in the capital cost over 15 times the average salary, although the South East and South West are now not far behind, with housing in these regions costing over 12 times the average local salary. By contrast, housing in the North East, Northern Ireland, an Scotland is still semi affordable, costing between 6.34 and 6.9 times the average salary. 

Having said that, London seems to have had its worst moment for first-time buyers back in 2016, when the house price income ration reached an obscene 16.64 per cent – so, at least there is some improvement. More worryingly, while affordability is improving (albeit very slowly) in London, it is worsening in the East of England, Northern Ireland and North East.

Mortgage paperwork

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What does all of this mean for first-time buyers? Unfortunately, it looks like affordability will remain a struggle, not so much because of the consistently rising house prices (there are signs that the growth will finally slow down this year and beyond), but because salary growth is not keeping pace. The average first-time buyer earns just £23,643 yet pays £209,163 for their first home – a chasm more than just a gap. Director of Benham and Reeves, Marc von Grundherr, commented: 'The UK’s house price-to-income ratio reached its highest point in a decade by the end of 2020, no doubt driven by a steep jump in house prices brought about by the market adrenaline shot of a stamp duty holiday.'

Marc confirms that 'even with stronger wage growth in recent years, earnings have failed to keep pace with house prices and so it’s very likely we could see this issue of affordability grow larger before it starts to reduce.' It now seems truer than ever that some kind of a new first-time buyer assistance programme will need to be launched soon if a whole generation is not to be permanently excluded from home ownership.

Anna is a professional writer with many years of experience. She has a passion for contemporary home decor and gardening. She covers a range of topics, from practical advice to interior and garden design.