Posted on 15/06/2017

Working people face house purchase prices greater than seven times their income

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Working people looking to purchase a property will face prices 7.6 times greater than their annual income according to new figures released by the Office for National Statistics (ONS), despite a mixed outlook for the construction sector.

The disproportion between earnings and property prices is at its highest point ever in England and Wales. Prices increased by 259% between 1997 and 2016, but with average annual earnings only increasing 68% in the same period, many people will not have the funds available to purchase a home. According to Shelter – the housing and homelessness charity – nearly 80% of families cannot afford new properties in their area.

Struggling first time buyers

First time buyers have increasingly struggled to afford homes over the last two decades. The report from ONS will be unwelcome news to those already facing stagnating wages.

At the end of 2016, the government also announced the end of Help to Buy – the scheme set up to support those seeking to purchase their first home.

But as Nationwide cuts rates on its mortgage lending by up to 0.1% and Santander announces cuts of 0.3%, the competition between banks may provide a positive outlook for struggling buyers. In addition, further relief may come as buy-to-let landlords are withdrawing from the market, leaving more properties available with no increase in price.

A change in London?

It comes as no surprise that the capital has the biggest difference between earnings and house prices, containing seven of the 10 most unaffordable areas in England and Wales.

Kensington and Chelsea tops the list, where an average property cost 38 times annual earnings for local residents in 2016 – a huge rise from 13 times more in 1997.

But a drop in estate agent stock levels and times of economic uncertainty have actually seen a fall in house prices in the city. Reducing values in central London are believed to be the cause of the largest reduction seen in almost eight years, as prices have fallen throughout the city at an average of 1.5%.

The most affordable area in England and Wales relative to earnings was Copeland in Cumbria with house prices only 2.8 times greater than earnings – an increase from 1.96 times greater in 1997.

The end of Help to Buy

The government’s flagship home ownership scheme was cancelled at the end of 2016 having helped more than 100,000 applicants buy their first home.

The announcement was met with mixed responses as critics claimed it had actually increased house prices and been ineffective for many. In February, the BBC’s research suggested that only 10 homes had been purchased in Hammersmith and Fulham, at a cost of £1.9 million in total – prompting questions as to the project’s viability.

The Council of Mortgage Lenders claimed Help to Buy had worked “exceptionally well” and provided mortgages to those who would have struggled to achieve a mortgage independently. Now though, many banks and building societies also offer mortgages with low deposits to first time buyers, leading the Bank of England to declare in September that the scheme would be brought to an end.

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