The gap between property prices and wages is continuing to grow, raising concerns about mortgage affordability, despite house price growth slowing.
According to research by online property portal Zoopla, the average house price is growing by 0.53% year on year, while average earnings have actually fallen by 0.6%, a difference of 1.13%.
The worst affected area in the UK is Luton, where house prices have grown by £12,499, 5.06%, while average wages have fallen by £970, 2.94%, since this time last year, leading to a gap of 7.99% between growth in wages and property prices.
After Luton, the largest gap was in Stevenage, where house prices have increased by £5,725, 1.86%, over the last year, while salaries have declined by £1,530, 4.55%, a difference of 6.41%.
While house prices have fallen in London in recent months, it is still the least affordable city in the UK, with the average home in the Capital currently costing 19.53 times more than the average salary. Property prices in Guildford and Winchester recorded gaps of 18.39 and 17.78 times respectively compared to local earnings.
Lawrence Hall from Zoopla said; “The data shows a clear affordability north-south divide, where the top ten most unaffordable places regarding house price to salary ratio are all in Southern England. In contrast, the top ten locations where house prices are more in line with salaries, are predominantly in Northern England.”
The growing gap between house prices and what borrowers are earning is likely to fuel concerns about mortgage affordability. Stagnant and even falling wages leave many homeowners vulnerable to defaulting on their monthly repayments.
While the Bank of England chose to keep interest rates on hold this month, there has been mounting speculation that rates will have to go up in the near future, especially if the economy were to perform strongly in the second half of this year.
The minutes of the Bank’s policy setting Monetary Policy Committee’s August meeting said; “If the economy were to follow a path broadly consistent with the August central projection, then monetary policy could need to be tightened by a somewhat greater extent over the forecast period than the path implied by the yield curve underlying the August projections.”
An increase in interest rates would push up monthly mortgage repayments, leaving borrowers trapped between rising costs and falling wages.
If you’re a homeowner worried about the affordability of your mortgage, or if your property is in negative equity and you can’t afford to move on, contact Negative Equity UK for a consultation on 0161 631 2727 or online at negtaiveequityuk.com.