UK House Prices Now 900% the Average Annual Salary

In what is likely to come as a blow for first-time buyers and a boom for existing homeowners, property prices in the UK are a full 5.4% up over the same period last year. This now puts the average market price for a home in the UK at a record high of £245,000, according to the latest figures from the Office for National Statistics (ONS).

Published this week, the data suggests the most rapid year-on-year growth for average house prices in four years. The figure also provides further confirmation that the UK public’s post-lockdown appetite for sales and purchases remains peaked, irrespective of ongoing economic uncertainty.

The temporary stamp duty holiday and additional land tax cuts across the UK have also been credited with fuelling the market’s impressive return to strength.

Additional challenges for aspiring homeowners

Real estate market prosperity may be beneficial for the economy as a whole, though it continues to cause a serious headache for many first-time buyers. A separate report published by the ONS detailing average weekly earnings demonstrated how the vast majority of workers in the UK are being almost entirely priced out of the market.

According to the ONS, the average annual salary in the UK is £26,624, or £512 per week. In this case, the average property price in the UK is no more than 900% higher than what the average employee earns in a year.

Despite assurances, the Bank of England announced that a review of mortgage lending rules would make it easier for first-time buyers to obtain a mortgage. The figures above paint an entirely different picture. The vast majority of major banks and lenders in the UK cap their mortgages at five times the annual salary of the applicant—nowhere near enough to cover the costs of the average UK home.

First-time buyers could therefore find themselves only able to qualify for around 50% of the funds needed to purchase a property, resulting in impossibly elevated down payment requirements to cover the rest. To find out costs more accurately, use our mortgage calculator in the UK.

Loan criteria relaxation and maximum loan adjustments

The Bank of England confirmed this week that it was considering an alteration to existing rules that place limitations on how much people can borrow as a multiple of their annual salary. Nevertheless, the likelihood of this being increased to nine times or even ten times a person’s average salary by any major lender is more or less zero.

Commenting on behalf of Andrews Property Group, chief executive David Westgate predicted a continuation of highly elevated property prices for some time to come.

“For now, house prices are being driven upwards by the stamp duty holiday, but rising unemployment and the small matter of a potentially messy No-Deal Brexit will almost certainly see average values cool off during 2021,” he said.

“Rising redundancies and reduced mortgage availability at higher loan values will invariably hit demand, but the feel-good factor generated by a working vaccine, coupled with the continued lack of supply, could prevent the steep drop in prices some are expecting.”