House price earnings ratio reaches historic high in 2021 as UK experiences mortgage affordability paradox

29 November 2021

  • The latest research from the Intermediary Mortgage Lenders Association suggests that the UK is experiencing a mortgage affordability paradox
  • Mortgage interest and capital repayments as a percentage of home buyer income were at a record low of 16.7% last year, however, the UK’s house price to earnings ratio continues to grow

In its latest report—The Mortgage Affordability Paradox —IMLA found that despite years of record low interest rates, characterised best by the range of sub one per cent mortgages which emerged in 2021, the UK continues to suffer from a significant housing affordability problem.

In June 2021, the UK’s house price to earnings ratio—which is the commonly used benchmark of housing affordability—reached a record national high of 8.8 times. This is up from the previous high of 8.7 times in August 2007. There are also significant regional differences, with the ratio reaching 11.0 in London in Q3, 2021; more than twice that of the Northeast of England.

Despite mortgage interest and capital repayments (as a percentage of homebuyer income) having reached a record low of 16.7% in 2020, first-time buyer (FTB) numbers have dropped. Since 2007, a cumulative shortfall of 2.7 million FTBs has arisen, with 2020 seeing a shortfall of nearly 200,000 against expected purchasers based on previous behaviour.

For the many who wish to buy but cannot, there are potentially significant financial implications. IMLA found that nationally, those who own instead of renting see a comparative 25% reduction in their living costs. Homeowners experience relative cost savings in every region in England, including London and the Southeast where owning is a fifth cheaper. In Scotland, the gap grows to 43%.

However, while house price growth is putting pressure on buyers to find extra upfront cash, there is good news in that mortgage product availability remains abundant. Research from IMLA into the options for mortgage borrowers (including those with complex financial situations) found that most mortgage lenders remain keen to lend to the self-employed (88%), people with credit impairments (46%) and those will irregular incomes (71%). It also uncovered that 46% of lenders have even made changes to their criteria to cater for people that were financially impacted by the coronavirus crisis.

Kate Davies, Executive Director of the Intermediary Mortgage Lenders Association, comments

“We speak often about the challenges that plague the housing market, but our latest report brings to light just how severe these are. Even with the costs of borrowing at relative lows, many aspiring homeowners will still struggle to step onto the ladder without the support of loved ones.

“This paradox is something that we must all tackle to ensure the same opportunities that we have benefited from are made available to coming generations. A previous IMLA report looking at the UK’s intergenerational wealth divide found that paying a mortgage rather than renting privately could leave the average person £350,000 better off over a 30-year period. We also know that homeowners have lower living costs compared to renters.

“It’s certainly time for a rethink. We need a clear vision of how the many components of the housing and mortgage market pull together to boost housing supply, better keep house price growth at controlled levels, and, ensure safe borrowing practices. Some time on from the peak of the pandemic disruption we would urge Government to again place this high up on its ‘to do’ list.”

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For further information please contact:

Sophie Placido, Rostrum
Tel: +44 (0)7786 013 599

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