The cost of owning a home in the UK is now more than seven times the average income, taking housing affordability to its highest level, data shows.
Since the pandemic began, home prices have risen 16.8 percent, according to Halifax, while average incomes have risen just 2.7 percent.
In the first three months of the year, the cost of a typical home was £279,431, while the average annual income for a full-time employee was estimated at £39,402.
That puts the home price-to-income ratio at 7.1, the least affordable level on record.
Despite the rise in average house prices, there are still large disparities between prices across different regions of the UK
At the start of 2020, the average UK income was £38,374 and the average house price was £239,281, according to Halifax, resulting in a house price to income ratio of 6.2.
Despite this price hike, demand for homes remains strong. Last year, the number of first-time buyers rose at a record rate of 35 percent to an all-time high of 409,370.
However, rising prices are having an impact on those trying to get a foot on the real estate ladder. data suggests so 26 percent of first-time buyersare now paying stamp duty, suggesting they are shelling out over £300,000 for their homes.
Meanwhile, the Bank of England is scrapping a key part of the affordability stress test that forces lenders to withdraw borrowers’ finances against their high standard plus 3 percent rate.
However, while the stress test is being phased out, the loan-to-income flow limit will continue.
This is the multiple that banks will lend based on a person’s annual salary.
This means banks will continue to limit the number of mortgages they can offer if someone is borrowing more than 4.5 times their salary.
Home price inflation continues to outpace wage increases, causing the unaffordability rate to reach record highs.
Andrew Asaam, Mortgage Director, Halifax said: “There is no question that the economics of home buying have changed significantly in recent years.
“Rising house prices and slower wage growth have combined to push traditional measures of housing affordability to the limit.
‘However, we also know from strong transaction numbers that demand has remained extremely strong over this period, both from movers looking for larger properties and first-time buyers taking their first steps up the ladder.
“With interest rates rising to fight inflation, it’s unlikely that house prices will continue to rise at the pace we’ve seen recently. This should narrow the gap between median earnings and house prices over time.
‘The responsible handling of mortgage lending in this environment, in which the lenders thoroughly check whether the repayments can be sustained even if interest rates rise sharply in the future, should also be emphasized.’
The rise in house prices has resulted in a rise in first-time stamp duty payments by buyers, meaning more than £300.00 are paying for their homes.
While average affordability rates have risen nationwide, there are strong regional disparities in house prices.
The south and east of England continue to account for a sizeable proportion of the least affordable local areas for home buying.
In the center of the capital, Westminster and the City of London have the largest affordability gap, where average prices are 14.5 times median income.
However, this is an improvement. Homes in these areas had a profit-to-home price ratio of 16.8 as of early 2020.
At the other end of the scale, Scottish locations dominated the list of cheapest local areas. Inverclyde in western Scotland is the cheapest place to buy a house, with typical house prices being just 3.1 times median income.
Pembrokeshire, Wales has seen the biggest deterioration in affordability over the past two years as buyer demand has surged in rural areas that offer more space.
The home price-to-income ratio has risen from 4.3 in early 2020 to 6.9, close to the national average.
Rachel Springall, finance expert at Moneyfacts, said: “Aspiring property owners will know that affordable housing is very scarce right now and this is unlikely to be fixed any time soon.
“There would have to be a significant increase in the choice of affordable housing to make a meaningful difference in terms of supply issues.
“Home prices are rising and are unlikely to slow down in the short term – meaning potential buyers may have to wait longer to put down a down payment.”
David Hollingworth of L&C Mortgages spoke about the conundrum for first-time buyers: “The question is twofold: will I be able to borrow enough and can I save enough deposit to cover the difference between the mortgage and the purchase? Price?
“The unexpected boost the pandemic gave to real estate caused prices to move further away. The only benefit was that people saved more, but of course we did a brief reversal there with the cost of living crisis, so nothing seems to get any easier.
“There just isn’t a lot of real estate available and so this mismatch with demand has only supported and pushed prices up over the last year or so.”
However, he says there are options. Although Help to Buy is set to expire in March next year, shoppers still have time to make the most of the savings on offer.
Additionally, most lenders now offer something similar to a 5 percent deposit mortgage.
Hollingworth also suggests that while the government is unlikely to eliminate stamp duty, the surge in first-time buyers paying the tax should prompt a review of banding for the group so more people can take advantage of the tax break.
The best mortgage rates and how to find them
Mortgage rates have risen significantly as the Bank of England’s base rate has risen rapidly.
If you’re looking to buy your first home, move, or mortgage, it’s important to get independent, independent advice from an agent who can help you find the best deal.
To help our readers find the best mortgage, This is Money has partnered with independent toll-free broker L&C.
Our mortgage calculator you can filter offers to see which match the value of your home and the amount of the down payment.
You can also compare different fixed-rate mortgage terms, from two-year fixed rates to five-year fixed rates to 10-year fixed rates, showing the monthly cost and the total cost.
Use the tool at the link below to compare the best deals, taking into account both fees and tariffs.
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A house now costs seven times the average UK income, according to Halifax
Source link A house now costs seven times the average UK income, according to Halifax