UK homeowners have often found themselves ‘earning’ more from the increasing value of their property than from their take-home pay. New research today from Halifax suggests that this historic trend might be reversing – but unpicking the story, things are slightly more complicated.
UK homeowners have often found themselves ‘earning’ more from the increasing value of their property than from their take-home pay. But new research today from Halifax suggests that this historic trend might be reversing.
For many in the property market, this is welcome news.
After years of property prices drastically outpacing earnings, prospective homebuyers will be breathing a small sigh of relief. Affordability seems to be on the rise. Mortgages seem to be becoming cheaper.
But it would be wrong to celebrate prematurely.
Yes, Halifax’s report indicates the first signs of a turning tide. But unpicking the story a little more, things are slightly more complicated.
The two trends
First things first, it’s important to understand how this news came to be. In short, this latest report from Halifax is an inevitable result of two diverging trends.
On the one hand, UK wages have been rising much faster than expected – in fact, they’ve risen at the fastest rate since the financial crisis. Real pay growth, taking inflation into consideration, has recently edged up to 1.6% on the year, excluding bonuses.
This probably has something to do with workers’ bargaining power, which has gradually risen on the back of the lowest levels of unemployment in 40 years; a record 32.7m people were in work in the three months to February, with most of the increase coming in the form of full-time employment.
On the other hand, house price growth is standing at a six-year low. Average house prices have increased by just 0.6% this year to February 2019, and have actually fallen by 3.8% in London.
The is probably related to a mixture of factors: stamp duty, minimal inflation in the pound, and the dreaded B-word are just a few examples.
In any case, combine these two movements, and we have today’s headline.
Examining things further
That might sound straightforward, but there’s a couple of interesting points to make here. The first is that there continues to be significant variations across the country.
For example, while the trend across the country indicates that the gulf between wages and prices is diminishing, London appears to be an exception, with average house prices increasing more than pay (£23,817) over the last five years.
