New research aims to address the age-old debate of which generation has it worse when it comes to housing affordability.
Quick-buy firm the House Buyer Bureau (HBB) has looked at how the value of a home and the average earnings has changed every decade since the 1970s and what this means in terms of housing affordability for homebuyers. Even when adjusting for inflation, the analysis shows today’s homebuyers have by far the toughest financial task - with house prices sitting at 8.8 times the average earnings, more than doubling since the 1970s.
The research shows that the average house price throughout the 1970s sat at just £9,277, the equivalent of £68,493 today after adjusting for inflation. Although the average home may have been significantly more affordable when compared to the current market, the average earnings was also far lower at £2,265 or £16,723 after adjusting for inflation.
As a result, the average home during the 70s required 4.1 times income.
While this climbed to 4.2 times income in the 1980s, it actually fell to just 4 times income during the 1990s, making it the most affordable decade since the 1970s in which to climb the property ladder. However, this ratio of property affordability has been on the rise ever since, increasing considerably during the 2000s, with house prices requiring 6.4 times income during the first decade of the new Millennium and hitting 7.1 in the decade that followed.
As it stands in the current market, homebuyers have never had a harder task when looking to climb the ladder, HBB said.
So far this decade, the average house price has hit £286,489, 318% higher than the average seen throughout the 70s. While average earnings have also increased to £32,432, this marks just a 94% increase in earnings. As a result, the average homebuyer today requires 8.8 times income to cover the cost of a home, with this income to house price ratio more than doubling since the 1970s.
Chris Hodgkinson, managing director of House Buyer Bureau, said “you have to feel for today’s homebuyers who have seen house prices explode over the last decade or two, in particular, while the earnings on offer to them have failed to keep pace. As a result, they require over double the level of income to cover the cost of a home compared to their previous counterparts looking to purchase back in the 1970s. As if this wasn’t bad enough, they’ve been further squeezed by high levels of inflation and the cost of living crisis in recent months and, as a result, are now paying through the teeth when looking to secure a mortgage due to interest rates hitting 5%.”
Generation Rent Says House Prices too High for Tenants to buy
A statement from activist group Generation Rent suggests there’s a connection between Section 21 and the period of time people rent while saving for a deposit to buy a home.
Ben Twomey says "recent interest rate rises and the likelihood of higher deposits being required from buyers means that prospective first time buyers must stay longer in rented accommodation while saving. These increases mean that renters will on average have to rent for longer than ever before being able to accumulate a deposit. Most renters dream of owning their home one day, but the struggle to save has got even worse in the past decade. In much of the country, the typical worker faces at least a decade living and saving in the private rented sector before they have a mortgage deposit. That gets close to two decades for Londoners and even then that’s only possible by sharing with other people into their forties. More people are renting from private landlords for longer stretches of their lives, and want a home that allows them to settle down. That’s why we need the measures in the Renters Reform Bill that will stop landlords evicting tenants without a valid reason, drive out criminal landlords and improve the quality of private rented homes."
Research by his group suggests that in 2012 it would, on average, have taken 6.8 years to save for a deposit for a mortgage. Higher rents and house prices mean it now takes nearly a decade, at 9.6 years to save for a deposit.
The research shows that the region least affected is the North East, where it takes the same amount of time as it did a decade ago (approximately 4.6 years) to save for a deposit; London is the worst affected taking an extra 4.3 years to save for a deposit, making the average time to save for a deposit in the capital some 18.3 years.
A key element in the expanded timescale is is the increase in the price of the average first time buyer home, which rose by 72 per cent between 2012 to 2023 to £253,202. The group’s statement says “with ordinary renters facing many more years in the rental market before being in a position to buy, Generation Rent is calling on MPs to back the Renters Reform Bill and make sure that renters are properly protected from unfair evictions and substandard housing. To reduce rents and therefore the length of time it takes to save, Generation Rent is calling on the government to build enough homes in the places people want to live, including social housing which will directly help those most in need. It has looked at government data on rents, house prices and salaries to estimate how long it would take the typical single renter to save for a deposit."
Assuming that tenants saved 20% of the income they had left after tax, student loan contributions and rent, the median renter nationally could save £2,177 per year in 2012, which rose to £2,630 per year in 2022-23, a rise of 21%. However, Generation Rent claims that because the average 10% deposit for first time buyers of £14,745 in 2012 has now inflated to £25,320, it would take 9.6 years of saving to reach.
In London the position is even more severe and the statement claims the median rent on a one-bed in London is £1,276, 48 % of the median salary. A renter realistically could only live in a shared house, but even then it would take 18.3 years to raise the average deposit of £45,979.
Tenancy Renewals Shoot up as Renters Delay Decisions to Buy
A lettings agency dealing primarily with Prime Central London is reporting that tenancy renewal volumes are shooting upwards as renters stay put and wait to see what happens in the sales sector.
Some 51% of JLL’s deals agreed in Q2 2023 were renewals, up from 45% a year ago and 24% as recently as Q2 2021. The number of new lets rose this quarter compared with last, up 13%. This quarter the JLL PCL index saw rents rise by 1.9% over the three month period, with rents 5.4% higher than they were at the same point a year ago.
Small flats saw the highest annual increase in rents at 6.7% whereas more expensive properties (3,000 per week or more) saw a more modest 2.9% annual increase. Rents are now 26% higher for one-bedroom flats than they were three years ago at the end of Q2 2020. For prospective tenants having to contend with low stock levels there appears to be some respite. Stock levels are starting to increase, albeit off a low base.
The number of rental properties listed to let at the end of Q2 2023 was up 13.8% on the same point in 2022. But volumes remain 55% down on levels we were seeing pre-pandemic in Q2 2019.
Director of UK residential research at JLL, Marcus Dixon, saod “the implications of stubborn inflation on the UK mortgage market are hampering activity in prime central London. While fewer buyers are heavily indebted - almost half buy cash - uncertainty surrounding the short-term outlook is impacting prices. The lettings market remains competitive, stock levels have improved on their 2022 lows but there are still more prospective tenants than there are properties. This has resulted in further rent increases this quarter, with rents almost 20% higher than they were in 2020. The lower end of the rental market continues to see a steady stream of (formerly) prospective buyers moving across into lettings. With smaller properties, mainly one- and two-bedroom flats, recording the highest annual increase in rents, while prices for similar properties are seeing more significant falls than homes in more expensive price bands.”
Rental Demand set to Last Long Term as Mortgage Terms Grow
It looks likely that rental demand will remain high over then indefinite long term as some people resist growing mortgage periods.
New analysis and a poll of 2,000 people by consultancy Hargreaves Lansdown show that more than one in six people expect to be over the age of 65 by the time they repay their mortgage and one in 10 expect to be over 70 – or never to pay it off. Among those who were aged 55 and over and still had a mortgage, one in five expected to repay over the age of 70 and seven per cent said they’d never be able to repay their mortgage.
Of those who were already retired, 80% owned outright and six per cent still had a mortgage. Fast rising mortgage rates are likely to force more people to extend the period of their mortgage later in life - or to remain in rental property for longer, or possibly for life if deposits remain challenging to save.
Sarah Coles, head of personal finance at Hargreaves Lansdown, says “higher mortgage rates are likely to mean even more people paying their mortgage later in life. It has pushed the average two year fixed rate deal to around 6.2% according to Moneyfacts, causing a remortgaging nightmare for hundreds of thousands of people. As a result, lenders have agreed with the government to make it easier to temporarily extend the term of the mortgage, without affordability checks. It is designed to make short-term mortgage tweaks easier, but there's every chance that people taking advantage may end up with a more permanent change, to make monthly payments affordable. With the average cost of a home now at £286,000, building a deposit takes far longer … It means the average age of a first-time buyer has hit 30. The fact that first-time buyers are borrowing so many multiples of their income means repayments are stretched over a longer period too.”