Ability to buy a home better today than in 1997 for most of England and Wales
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Leading estate agents Hamptons International published the findings of its quarterly Ability to Buy index today. It showed that the ability to buy a home improved for all areas of the country in the first quarter of 2015 (compared to Q4 2014). For many parts of England and Wales, affordability is now better than in 1997, when the index first began.

For the average household, ability to buy in 2014 was broadly stable over the year increasing from 135.4 to 135.5 but this figure masks regional differences. The North East saw the biggest recovery over 2014 (136.1 to 139.4), while London saw the biggest fall (107 to 98).

Hamptons International’s Ability to Buy index is the only housing affordability index which measures the real pressures buyers face, not only from changes in house prices, incomes and interest rates, but also changes in the cost of living.

Below are the key findings:

  • Ability to buy improved in the first quarter of 2015 (Q1 2015) compared to the last quarter of 2014 (Q4 2014) for all areas of the country. (see chart 1, table 1)

  • Lower inflation means people have spent less on essentials and this, coupled with higher earnings and lower mortgage rates, means households in most parts of the country were left with more money with which to finance buying a home. (see table 2)

  • The average Ability to Buy Index for the UK was broadly stable compared with last year, increasing from 135.4 in Q1 2014 to 135.5 in Q1 2015, but in The North East it increased from 136.1 to 139.4. Rising house prices in London meant that the average ability to buy index in the capital fell from 107 to 98.

  • Over the longer term, the North East and Wales saw the biggest recovery since the index began in 1997. Ability to buy in these areas is about 10 per cent better than in 1997 because of relatively lower house price growth. In the South East and East, ability to buy is about two per cent below these levels, but in London, the disproportionate increase in average house prices means it is 37 per cent below.

  • The measures in the Budget to increase personal allowance to £11,000 from next year and the rate at which the 40p tax rate becomes payable to £43,000, will make only a small difference for people’s ability to buy on their own.

  • London will benefit most from the Budget changes to personal allowance, because higher average incomes are no longer caught by the higher rate tax threshold. However it will only make a one per cent difference to ability to buy based on house prices, incomes and spending today.

  • For first time buyers the new rules on maintenance grants will make it still more difficult for graduates to save for a deposit quickly. However, canny savers will be able to take advantage of the 25 per cent government bonus on savings available with the Help to Buy ISA which is to be introduced in the autumn.

Commenting on the results, Fionnuala Earley, Director of Residential Research at Hamptons International said:

“Despite rising house prices ability to buy is improving across England and Wales. In Q1 2015 most households had more money left over after paying for essentials to put towards buying a home. That said ability to buy differs significantly across the country. In London, and the South East house price growth has outstripped wages and the lower costs of living, making it more difficult to buy. In contrast, the regions of the Northern Powerhouse have seen ability to buy get better and better.

"The measures in the Budget have made very little difference to ability to buy. The rise in the personal allowance and the 40p higher rate income threshold are too small to offset the increase in prices. And for first time buyers, the arrangements for maintenance loans will mean it will take even longer to save a deposit. Wise graduates would do well to take advantage of the new Help to Buy ISA."

View Appendix and charts here.

 

For more information and for a copy of the report, please contact

Alison Blease
Press Office Hamptons International

T: 0776 967 7825

E: bleasea@hamptons-int.com

Fionnuala Earley

T: 07760 163 120

E: earleyf@hamptons-int.com

 

Note to editors:


The Ability to Buy Index is constructed using data from the Annual Survey of Hours and Earnings, Labour Force Survey, HM Land Registry, HMRC, Family and Childcare Trust, Family Spending Survey and DCLG

Essential spending is spending on Food, Transport, Utilities, Council Tax and Childcare

Mean rather than median earnings from ASHE are used as a more representative measure of the income of households likely to buy their own homes

The index is based at 1997=100

View Appendix and charts here.

 

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