Affordability of housing in the UK

Affordability of housing in the UK reflects how easy or difficult it is to rent or buy property. Housing tenure in the UK can be broadly divided into three categories: Owner-occupied; Private Rented Sector (PRS); and Social Rented Sector (SRS). The affordability of housing in the UK varies widely on a regional basis – house prices and rents will differ as a result of market factors such as the state of the local economy, transport links and the supply of housing. For owner-occupied property key determinants of affordability are: house prices; income; interest rates; and purchase costs. For rented property, PRS rents will largely be a reflection of house prices, while SRS rents are set by Local Authorities, Housing Associations or similar on the basis of what lower income groups can afford.

Land Registry figures for England and Wales show that house prices tripled in the 20 years between 1995 and 2015. Growth was almost continuous during the period, save for a two-year period of decline around 2008 as a result of the banking crisis.

The gap between income and house prices has changed in the last 20 years such that even in the most affordable regions of England and Wales buyers have to spend six times their income, while in London the median house now costs 12 times the median London income. In comparison, in 1995 where a homebuyer earning the median salary for their region would have had to spend between 3.2 times and 4.4 times their salary on a house, depending on where they lived.

In London in 1995, the median income was £19,000 and the median house price was £83,000, meaning that people were spending 4.4 times their income on buying a property. By 2012-13, the median income in London had increased to £24,600 and the median London house price had increased to £300,000, thus people were forced to spend 12.2 times their income on a house.

However, in 1995 the Bank Base Rate was 6%, but was cut to 0.5% in March 2009, where it remained until August 2016 when it was further reduced to 0.25%. The resultant cheap mortgages have significantly ameliorated the affordability issues as can be seen by the mortgage payment as a percentage of take home pay chart in the right pane.

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