The last decade certainly saw some mixed fortune: Britain crawled out of the financial crisis only to fall down a Brexit-shaped hole. It’s hardly surprising that the stuttering economy led to the weakest decade of house price growth since the 1990s.
However, it is not a straightforward story. Lower price growth has also led to a rise in affordability, but also widened housing inequality as prices have rocketed in some areas and stalled in others.
Overall, house prices rose 33% over the course of the last decade according to the analysis by Nationwide. While this was by no means a disaster, long-time property owners may feel somewhat short-changed as prices rocketed 180% in the 1980s.
Predictably, London was the star performer, in the 2010s with house prices rising twice as fast as the UK average at 66%. The neighbouring Outer Metropolitan region (which includes places such as Slough, Guildford, Crawley and Chelmsford) also significantly outperformed, with prices rising 54% during the 2010s.
The northern regions, in particular the North, Yorkshire & Humberside and North West, saw relatively weak house price growth over the decade, with prices slow to recover following the financial crisis.
House price growth has remained subdued in Scotland, with just an 8% rise over the past 10 years. Northern Ireland saw the lowest growth, with prices up 2% compared with the end of 2009.
Low interest rates helped support affordability throughout the decade, however house price growth still outstripped the 20% rise in average incomes. This conspired against first time buyers, who struggle to raise large deposits.
At the end of 2019, the UK First Time Buyer (FTB) house price to earnings ratio stood at 5, close to 2007’s record high of 5.4, and up from 4.4 at the end of 2009.
“The last decade has also seen a significant widening in the gap between the least affordable and most affordable regions,” said Andrew Harvey, Nationwide’s Senior Economist. “London been the least affordable region for most of the past 40 years, but its house price earnings ratio (HPER) 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.”
The region with the lowest house price to earnings ratio in 2019 was Scotland with a HPER of 3.2 – a decade ago it was the North with a HPER of 3.3, according to the analysis.
“One of the consequences of high house prices relative to earnings is that it makes raising a deposit a significant challenge for prospective first time buyers,” said Harvey. Indeed, at present a 20% deposit is currently equivalent to the entire pre-tax income of an average earner, up from 88% a decade ago, though there is significant variation across the UK.
“Reflecting the trend in overall house prices, some regions have seen a substantial increase in the time taken to save a deposit,” said Harvey. “For example, in the South West it would now take around 10 years for an average earner to amass a 20% deposit, up from eight years at the end of 2009. The pressures are most acute in the capital, where someone earning an average income would need around 15 years to save a 20% deposit on a typical London property, up from 10 years a decade earlier.
However, there is a bright side. Low rates mean monthly mortgage payments still affordable outside London at the southeast. “Looking at mortgage affordability, this has actually improved for prospective First Time Buyers in recent years, with the cost of servicing the typical mortgage as a share of take home pay in most regions now lower than it was in 2009,” said Harvey. “This is due to the fall in borrowing costs, with average interest rates for new mortgages falling from around 5% in 2009 to 2.4% currently.”
The number of First Time Buyers is currently at a 12-year high; however, with house prices predicted to steadily rise on the back of a decisive election result, it’s questionable whether they’ll finish the next decade on top.
