Hamptons International released its latest Ability to Buy index today. It shows that ability to buy a home has improved by 2 per cent over the current government’s tenure and for first time buyers who can raise a deposit ability to buy is 11 per cent better. The West Midlands and London are the stand out exceptions. In London, where rising property prices have outpaced incomes ability to buy is now 77 per cent worse than five years ago. Over the last year the Ability to Buy index shows a fall of three per cent across the country, but this figure masks regional rises of nine per cent in the South West, four per cent in Wales and one per cent in the North West and Yorkshire & Humberside.
Below are the key findings:
- Ability to buy deteriorated by three per cent in 2014, but is on average two per cent better than at the time of the last Election. (charts 1 and 2)
- Mortgage rates continued to fall in 2014 to reach 2.9 per cent at the end of the year. That compares to 6.4 per cent at the 2007 market peak and is the main reason why ability to buy is now 67 per cent better than it was then. (chart 2)
- The South West (nine per cent), Wales (four per cent), Yorkshire and Humberside (one per cent) and the North West (one per cent) all saw an improvement in ability to buy since last year. (charts 3 and 4)
- At nine per cent the South West saw the biggest improvement. This reflects a more modest growth in prices of 5.5 per cent, the largest wage growth in the country at 4.5 per cent and lower spending on food and transport. (chart 3)
- In contrast London saw the biggest deterioration in ability to buy over the year at -73 per cent. This was due to a 17 per cent increase in house prices combined with a nine per cent increase in childcare costs and a 1.6 per cent fall in average incomes. (chart 3)
- Ability to buy also differs by household type. A working couple without children saw ability to buy deteriorate by one per cent over the year to Q4 2014, but it was three per cent better than at the time of the last election. Lower house prices and interest rates means this family has 78 per cent of its income left after tax, NI, essentials and paying a mortgage compared with 65 per cent at the last market peak and 76% at the time of the 2010 general election. (chart 3)
- Meanwhile a working family with two children and one parent working part time saw ability to buy fall by six per cent over the year leaving them five per cent worse than at the last election. That reflects higher childcare costs, rising house prices and slow earnings growth. This family is left with 41 per cent of its income after tax, national insurance, essentials and mortgage payments, almost twice as much as the 22 per cent at the last market peak and 42 per cent at the time of the last general election. (chart 3)
- First time buyers’ ability to buy is two per cent worse than last year, but 11 per cent better than at the last election. First time buyers have 46 per cent of their income left after tax, national insurance, spending on essentials and a mortgage, compared with just 16 per cent at the market peak and 41 per cent at the 2010 general election. Lower mortgage rates have helped but raising a deposit is still the big hurdle for first time buyers, especially when house prices are growing faster than earnings.
Hamptons International’s Ability to Buy Index is the only 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. The results show that ability to buy was three per cent worse in Q4 2014 than Q4 2013, but an improvement on the six per cent deterioration seen over the previous quarter.
Commenting on the findings Fionnuala Earley, Residential Research Director at Hamptons International said:
“The ability to buy a home today is on average two per cent better than it was at the time of the last general election, but despite some of the lowest mortgage rates on record, falling food and oil prices and some increase in wages, ability to buy is worse than this time last year. This is largely a result of house price growth outperforming incomes. But for working families with children the growing costs of childcare eats into the amount of money left at the end of the month to service a mortgage.
“For first time buyers the bigger struggle is still the cost of a deposit and as house prices grow it becomes more difficult to catch up. While it is still a challenge, with a strengthening economy, recovering real wage growth, low interest rates and huge competition between mortgage lenders for business, there are brighter times ahead.”
For more information and for a copy of the report, please contact
Press Office Hamptons International
T: 0776 967 7825
Research Hamptons International
T: 0782 483 7290
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.