Research from KPMG shows that the divergence between house prices and wages has grown so wide, that a first time buyer in London would need an annual wage of £76,971 to get onto the property ladder, with the actual average annual wage in the capital at just £27,999. The UK-wide annual wage needed is £40,553, against the actual average annual wage of £22,044. These figures are based on a 10% deposit and borrowing the remaining 90% at a loan to income ratio of 4.5.
Figures vary widely between the South and North, with the gap between actual and required annual wage being much narrower in the North, and in Scotland and Northern Ireland. The full table of regional statistics below shows that in the South East a first time buyer would need an annual wage of £46,010, against the actual average annual wage of £24,391. Northern Ireland sees the smallest gap with the actual average wage at £18,857 against the £21,219 needed; in England the narrowest gap is in the North East with £20,149 against £23,616. However, there is a substantial gap in every UK region between the actual and required wages needed, creating an environment where only those earning over the average can afford to buy.
But it’s not just home ownership that’s the issue – a KPMG-commissioned poll has revealed that some 69% of people feel there is not enough housing in the UK that is affordable, with 30% concerned about how they will afford or continue to afford their own home or pay their rent. And it seems these concerns about affording a home are hitting the younger generation the hardest, with that figure rising to 57% for 16-17 year olds and 52% for 18-24 year olds.
While this affordability gap is creating real issues for a vast swathe of the population, a secondary impact is on the business world and wider economy, with access to housing, especially in the South and bigger cities, potentially a barrier to attracting talent.
And yet, despite the growing divergence between prices and wages, and the nation’s concerns about affordability, the poll showed that we’re still a country of wannabe homeowners, with 73% of people saying they’d prefer to buy than rent.
And despite being the group with the highest levels of concern over affordability, the next generation of buyers are no different, with 72% of 16-17 year olds saying they want to be on the property ladder within ten years; 36% of those are even more hopeful, with a deadline of five years. With house prices and wages set to continue their divergence, the £76,971 annual wage needed in London, just like the £29,079 needed in the West Midlands and the £35,841 in the South West, will have increased further out of reach of the average 21 year old.
A potential reason for this desire to buy is revealed by the 58% of people who agree that owning property helps save for retirement showing that, for many, investing in a home has become a de facto pension pot.
“These figures make for frightening reading and show that housing affordability is no longer just a problem for lower wage earners. Now unless you earn well above average or receive an inheritance, it is unlikely you will be afford to buy, no matter where in the UK you live.
“And yet this isn’t just about home ownership, because our findings show genuine concern over wider affordability of housing, whether buying or renting. Being able to live in a stable home is a basic human need, tied up with important feelings of choice and certainty, and we are living in a world now where only a few can hope for that, which cannot be right.
“Last year we worked with Shelter to publish a blueprint for the next Government to tackle the housing crisis once and for all. That report looked in-depth and cross-tenure, and these latest figures are a sure indication that more needs to be done. Politicians need to develop an apolitical, long-term housing strategy, engaging both the public and private sectors, to get the UK building and stabilise our housing market. Reforms must be wide-spread: further unlocking public sector land banks, boosting small and self-builders, giving power to towns and cities to build the homes they need, and increasing investment in affordable homes are some of the ways government can match businesses’ commitment to achieve this.
“With the Election a week away, we again call on the next Government to act decisively on housing so that people’s basic housing needs and their longer-term aspirations can be met, whatever they might be.”
Digging deeper into the issue of affordability, while 69% of people agree there isn’t enough affordable housing in the UK, that figure rises to 77% for over 55s. When contrasted again with the divergence growth between house prices and wages between 1985 and 2015, it seems the older generation can remember a time when housing was much more affordable, whereas unaffordability of housing has become the norm for today’s aspiring buyers.
However, respondents across age groups were clear more needed to be done to help young people onto the property ladder, with an average of 45% in agreement and only around 10% difference between the lowest and highest scoring groups.
Summary findings and the full KPMG/Shelter ‘Building the Homes We Need’ report can be found on a dedicated website at http://www.thehomesweneed.org.uk/.
*All of the incomes stated are minimum incomes and are based on putting together a 10% deposit
Average House Price for first time buyers
ONS figures 2014
Current median annual wage (ftb)
ONS ASHE 2014
Required average annual wage (ftb)
|East of England||£180,331||£23,271||£40,074|
|Yorkshire and Humberside||£132,143||£20,223||£26,429|
Notes to Editors:
Poll data: KPMG commissioned an online survey from independent agency, Red Dot. The survey targeted 10,000 nationally representative people across the UK, including a larger sample of 16-17 year olds.
Statistical data: The statistical data on average first time buyer house prices, mean annual wages and required annual wages was collated by KPMG’s in-house economics team. The house price data came from ONS, as did the annual earnings data (found in the Annual Survey of Hours and Earnings) – both sets used were 2014 data to be comparable. These two data sets were analysed to understand the divergence over thirty years UK-wide and regionally. Then using a 10% deposit figure and a loan to income ratio of 4.5 (which is the upper threshold at which 85% of mortgages are given, cited by the Bank of England), the required annual wage of a first time buyer was calculated UK-wide and regionally.
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