UK House Prices Rising Faster Than Wages

Thursday, February 25th, 2016
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British house prices are set to rise much faster than almost non-existent consumer inflation and outstrip modest pay gains, making home the ownership dream even harder for the average first-time buyer, a Reuters poll has found.

They will rise 5.0 per cent this year, 4.0 per cent next and 3.8 per cent in 2018, according to medians in a poll of 20 property specialists taken in the past week, steeper this year than in forecasts published in December.

However, wages are only expected to rise 2.8 per cent this year and 3.6 per cent in 2017.

“The house price to earnings ratio is nudging six times and is less than 1.0 times off its all-time peak from 2007. Many younger people have no choice but to rent,” Tony Williams at Building Value said.

With interest rates at a record low of 0.5 per cent, borrowing is relatively cheap but buyers are usually required to have a 10-per-cent deposit, making getting on the housing ladder difficult.

The average asking price for a home was a record high of STG299,287 ($A581,648) this month, according to property website Rightmove, around 11 times the annual British salary.

In greater London the average asking price was STG643,843.

London homes were overwhelmingly rated as expensive, with a median of 9.0 on a scale of one to 10, ranging from very cheap to very expensive. Nationally, house prices were rated 7.0, above the 6.5 given in a December poll.

“UK house prices remain extremely over-valued. For now, they are supported by record low interest rates,” said Oliver Jones at Fathom.

Economists do not expect Bank Rate to go up until October at the earliest – and financial markets are not pricing in an interest rate rise for about two years – but both agree any increases would be gradual.

Rates would have to reach 2.0 per cent before seriously restraining the housing market, the poll found, a level only two of 33 economists surveyed by Reuters earlier this month had in their forecasts before the end of next year.

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