2010s house prices show widening affordability gap

The 2010s were the weakest decade for house price growth since the 1990s, although prices still rose by 33% over the 10 years, a new report published by Nationwide has revealed.

The report, House Prices and Affordability Through the Decades, highlighted the 33% rise in the 2010s was also above the 20% rise in average incomes over the same period.

Nationwide revealed that despite recent weakness, London was the top performing region over the last decade – with house prices rising twice as fast as the UK average, at 66%.

Commenting on the figures, Nationwide senior economist, Andrew Harvey, suggested the last decade had also seen a significant widening in the gap between the least affordable and most affordable regions.

“House price growth has continued to exceed earnings growth, resulting in a further rise in the House Price Earnings Ratio (HPER). At the end of 2019, the UK first-time buyer HPER stood at 5.0, close to 2007’s record high of 5.4, and up from 4.4 at the end of 2009,” he said.

“London been the least affordable region for most of the past 40 years, but its house price earnings ratio has reached new highs in recent years, reaching 10.2 in 2016, from 6.1 at the start of the decade, with only a modest improvement to 8.8 at the end of 2019.”

In terms of mortgage affordability, the report indicated it had improved for prospective first-time buyers in recent years – with the cost of servicing the typical mortgage as a share of take-home pay now lower in most regions than it was in 2009.

Nationwide suggested this was due to the fall in borrowing costs, with average interest rates for new mortgages falling from around 5% in 2009, to the current level of 2.4%.

CEO of the property lender Octane Capital, Jonathan Samuels, added: “It’s not often that you celebrate weaker growth figures but the performance of house prices in the 2010s may be an exception to the rule.

“Affordability is still a major hurdle after just 33% growth, so if the trajectory of the noughties had continued, the market would have been beyond the reach of many more people.

“For the property market, the cooling of price inflation triggered by the decision to leave the EU was arguably a net positive, especially in London and the South-East.

“The growth London had shown in the first half of the 2010s was unsustainable and could have triggered a sharp correction had it continued. While it has come down since 2016, an HPER of 8.8 in London is still a massive obstacle for the majority of would-be homeowners.”

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