Only the top 10% of income earners can afford an average house with less than five years of income in England, new research shows.
Analysis by the Office for National Statistics (ONS) highlights how many years of income need to be earned to afford the average house price. In England the average house price was £275,000 in the financial year ending 2022 and the average annual disposable household income was £33,000, equivalent to a ratio of 8.4 years of income.
This compares with average house price to income ratios of 6.4 in Wales, 5.3 in Scotland and 5.1 in Northern Ireland. Only households in the top 10% of income can afford an average home with fewer than five years of income in England, compared with the top 30% in Wales and the top 40% in Scotland and Northern Ireland, according to the ONS.
Even in the cheapest area, the North East of England, an average priced house has been equivalent to more than five times a low household income since 2002. Homes have become less affordable in all areas, that means an average priced home is equivalent to more multiples of a 20th percentile income now than in 1999.
London has increased the most, more than doubling from 10.9 in 1999 to 26.5 in 2022, the research shows. Karen Noye, mortgage expert at wealth manager Quilter, said "the differences highlight the wealth gap, putting homeownership further out of reach for many, especially in England. This situation will now be even worse as these calculations do not take into account any effects on housing cost affordability resulting from changes to mortgage interest rates and payments stretching people’s budgets that much further leaving with even less to save towards a deposit to buy a property. The pressures on affordability may lead to a downturn in house prices, adding: “The latest house price indices all point to declining or flatlining house prices. However, prices will need to drop considerably or wages increase massively for the affordability ratios to improve. While both are unlikely, the building of new homes to ease the supply and demand dynamic, and help first time buyers is likely to be a central battleground for next year’s election. Ultimately, the current housing market dynamics underline the importance of obtaining professional mortgage advice, especially for those nearing the end of their current mortgage deal or looking to buy in the short term. The stark house price to income ratio disparity across the UK mean that it is essential people do not overstretch themselves to a point where they cannot absorb any financial shocks and an adviser will help someone avoid that. The housing market remains unpredictable, necessitating careful planning and robust financial advice for potential borrowers if they can even get to the point of a purchase.”
Renting in London: two thirds of renters believe they don’t earn enough to save a deposit for a home
Almost two thirds of London renters (62 per cent) believe they do not earn enough to be able to save for a deposit to buy a home, according to exclusive research from homebuying and investment platform Allbricks. A London home now costs £526,000 on average — 14.4 times typical earnings across the capital. Meanwhile the average first-time buyer home costs £425,000 in London and the average deposit is now £144,500.
Even amid warnings of a market crash that could wipe 20 per cent off the value of London homes if mortgage rates continue to rise, the survey results show buying a home still remains out of reach for most renters in the capital. As asking rents hit a record high of £2,567 this month and demand continues to outstrip supply, London renters are struggling to save towards a deposit. Meanwhile existing savings are being eroded by inflation and the cost of living crisis.
“Rising interest rates and the cost of living might make house prices drop but they will also make it much harder to get a mortgage or save for a deposit,” said Allbricks CEO Shahram Shaida.
35% of Londoners surveyed by Allbricks say that, during the cost of living crisis, they have had to spend savings which were intended for a house deposit. Across the UK, where the average home now costs 10.6 times the average annual salary, 73% of renters say that on their current salary they will not be able to save a deposit.
“Even with disciplined budgeting efforts [...] the dream of owning a home appears to be a distant reality for many, emphasising the urgent need for innovative solutions to address these challenges in the property market,” said Shaida.
In recent years the Bank of Mum and Dad, or financial support from family members, has become a common funding stream for Londoners and UK homebuyers to get on or move up the property ladder. Yet 58% of Londoners surveyed now say family members are unable to provide financial help to buy a home.
Meanwhile, renters eagerly await news of the delayed Renters Bill, which was first introduced to Parliament on May 17, although its promised Second Reading has not yet taken place. Among proposed rental reform is a ban on Section 21 ‘no-fault’ evictions.
Rental campaign organisation Generation Rent says one eviction will take place every 15 minutes during the summer holidays if the Bill’s Second Reading is delayed until Autumn.
Focus on the UK’s mortgage ‘timebomb’ has left plight of private renters largely overlooked
In the latest crisis to hit UK renters, private rents have risen at their fastest since 2016, according to new data published by the Office for National Statistics (ONS). The ONS data is the latest concern for private renters who are “being forced into bidding wars”, ITV said, as “rents spiral and demand outstrips supply”.
So intense is the competition that there are now 20 requests to view each available property across the country, according to data commissioned by the BBC.
These problems combined have created a huge “power imbalance” that benefits landlords and further disempowers renters, said Portia Msimang, project coordinator of Renters’ Rights London, which campaigns for more rights for tenants.
How bad is the crisis?
Following reports of large numbers of tenants pursuing a smaller number of properties to rent, BBC News commissioned Rightmove to “trawl its data and gather a picture of the growing level of competition in the private rental sector”, the broadcaster said.
What emerged was a huge increase in viewings per property over the past four years.
According to Rightmove, in May, there were 20 requests to view most properties in Britain from prospective tenants, which is up from six in 2019. Numbers are even higher in some regions, reaching 30 in the Northwest of England.
This “mismatch” between demand from tenants and supply from landlords “has contributed to sharp increases in rents”, said the BBC. Rental costs are also rising because landlords themselves have been “hit with rising costs,” the broadcaster added, “from repairs to significant increases in mortgage rates”.
The message that demand has outstripped supply is “not good enough”, countered Portia Msimang, citing landlords offering properties to the highest bidder. “It’s not inevitable, it’s what [landlords] choose to do, and that’s what needs to be reined in”.
How many people are affected?
The situation for renters is “already dire”, said the Financial Times (FT). Currently in the UK there are approximately 5.5 million private rental homes, where more than a third of tenants spend half their take-home pay on rent – a rate that is considered “severely rent burdened”, according to a survey of 11,000 people by Spareroom, the flat-sharing platform.
In the first three months of this year, evictions due to rent arrears reached the highest level of records going back to 2009, the FT noted, while “no-fault” evictions rose to their highest level since 2017.
According to City Monitor, taking rent together with food inflation and rising bills over the past year, “this is the latest pinch putting tenants at the heart of the housing crisis in cities”.
What is causing the crisis?
Alex Diner, a senior researcher at the New Economics Foundation, in The Guardian said "this crisis has been a long time coming, When rent controls were abolished in the late 1980s, the then housing minister, Sir George Young, pledged that housing benefit will take the strain. And so it came to pass. For many landlords, taxpayers’ cash became a business strategy… in effect, we are all subsidising the private rental sector. However, over time “the burden has shifted on to tenants”, he added, as rates of housing benefits have been repeatedly frozen since 2016, and people who were previously eligible for support have been increasingly excluded, meaning that now “it is both taxpayers and tenants who are taking the strain."
Are rent controls the answer?
Some people argue that the only solution to the brewing crisis is the reintroduction of rent controls – an idea that “tends to attract popular support”, said university professors Alex Marsh and Kenneth Gibb in The Conversation. But “research shows… that rent control on its own cannot fix things,” they added. “It must go hand in hand with additional social housing and further measures to address housing affordability.”
For its part, the government has been working towards the introduction of the Renters' Reform Bill, which would bring an end to section 21 “no-fault” evictions as well as introducing a private rental ombudsman to help enforce renters’ rights and making it illegal for landlords and agents to refuse to rent properties to people who receive benefits.
However, “the government has been promising these changes since 2019”, said ITV, and so far they are yet to be passed. The current situation “cannot be reduced just to a rental crisis”, said Investors’ Chronicle, adding that what we are witnessing is “a full-blown housing crisis”.
The “widening gap between supply and demand of houses, rising costs and wages falling behind housing costs and inflation” are having “detrimental effects on the economy”, and all the while “more of our money goes on covering up the lack of investment in housing”.
“Housing affordability is a complex problem”, agreed Alex Marsh and Kenneth Gibb. Resolving it will “demand a suitably subtle combination of policies”.