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Houses unaffordable despite ‘weakest’ 10-year price growth since 1990s

Written by: Shekina Tuahene
London saw the strongest growth over the decade, while property prices only rose 2% in Northern Ireland
Houses unaffordable despite ‘weakest’ 10-year price growth since 1990s

The last decade saw the average price of a house in the UK increase by 33 per cent, the weakest growth for two decades – but this still outstripped the 20 per cent rise in wages.

According to the Nationwide Special Report ‘House Prices and Affordability Growth Through the Decades’, the 1980s saw 180 per cent growth while prices rose by 21 per cent in the 1990s. The 2000s saw the average price of a house increase by 117 per cent.

First-time buyers affected

Nationwide said at the end of 2019, the UK first-time buyer house price to earnings ratio (HPER) stood at five, close to 2007’s record high of 5.4, and up from 4.4 at the end of 2009.

The society said London had been the least affordable region for most of the past 40 years, but its HPER reached “new highs” in the past decade, climbing to 10.2 in 2016 from 6.1 at the start of the decade. It eased slightly to 8.8 by the end of 2019.

Andrew Harvey, Nationwide’s senior economist, said: “One of the consequences of high house prices relative to earnings is that it makes raising a deposit a significant challenge for prospective first-time buyers.

“Indeed, at present a 20 per cent deposit is currently equivalent to the entire pre-tax income of an average earner, up from 88 per cent a decade ago, though there is significant variation across the UK.”

Low rates favourable

“However, looking at mortgage affordability, this has actually improved for prospective first-time buyers in recent years, with the cost of servicing the typical mortgage as a share of take home pay in most regions now lower than it was in 2009,” he added.

“This is due to the fall in borrowing costs, with average interest rates for new mortgages falling from around five per cent in 2009 to 2.4 per cent currently.”

Weak growth good for buyers

Jonathan Samuels, CEO of Octane Capital, said the performance of house prices in the 2010s was something to be “celebrated”.

He said: “Affordability is still a major hurdle after just 33 per cent growth so if the trajectory of the noughties had continued the market would have been beyond the reach of many more people.

“For the property market, the cooling of price inflation triggered by the decision to leave the EU was arguably a net positive, especially in London and the South East.”

“The growth London had shown in the first half of the 2010s was unsustainable and could have triggered a sharp correction had it continued,” he added.

Regional differences

Overall, London saw the strongest growth of 66 per cent over the decade, followed by the Outer Metropolitan area which saw a 54 per cent rise.

The Outer South East and East Anglia regions both saw increases of 43 per cent.

At the bottom of the league, house prices in Northern Ireland only saw a two per cent rise while Scotland prices increased by eight per cent.

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