Property is more affordable than it’s ever been

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31 Jul 2015

Is property more affordable than it’s ever been?

Author: Antony Gibson

It’s true that property prices are higher than they have ever been, so how can property be more affordable? Antony Gibson, Director of Residential Sales at Romans, looks at the facts and figures and explains:

“Whether you can afford to buy a property or not is based on two things; the size of your deposit, especially if you’re a first time buyer, and your salary, for your monthly mortgage repayments. So yes, it’s true that property prices have gone up, but so have salaries. Furthermore, interest rates have never been lower.

“Unbelievably 26 years ago in 1989, when interest rates were at 13%, the average first time buyer was paying 98.3% of their salary into their annual mortgage repayments and owner occupiers were paying 72.8%. Fast forward to last year and it’s a different story; first time buyers are paying just 24.5%, and owner occupiers 20.3%.

“This has increased slightly over the last few years; record lows of 21.5% and 18.0% for first time buyers and owner occupiers, respectively, were seen in 2011. However, when compared to the last 27 years, as a whole, property is more affordable today.”

Mortgage repayments as percentage of salary

These figures also demonstrate how much difference the interest rate can make, with a direct relation between the higher interest rates and the higher mortgage repayments seen specifically from 1988 to 1992. For the last five years interest rates have remained at a favourable low of 0.5% but the Bank of England governor, Mark Carney, has recently announced this might be about to change.

Salary vs interest rates

“Nobody knows when the interest rate will change but we can’t ignore Carney’s news, especially as he said it could be increasing as early as 2016” adds Antony. “There are some brilliant mortgage deals available at the moment and I’d encourage anyone thinking about moving to factor in the possible Bank Rate increase when making this important decision.”

1988 vs 2014

Nominal salaries:
South East property prices:
Average interest rates:

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