It can't be denied that property prices have risen extortionately in the last few years, but has the rising cost of your home outstripped your earnings? Depending on where you live – and how much you earn – it could well have done, with research from Halifax revealing that average house prices have increased by more than the average employee's earnings in almost one in five (73 out of 384) local authority districts in the last two years.
Perhaps unsurprisingly, the vast majority of income-beating homes are in London, the South East and East, with areas in these regions representing 68 of the 73 local authority districts. The largest difference was in Hammersmith and Fulham, where house prices have increased by an average of £199,930 over the last two years, exceeding average take-home earnings in the area (£56,698 in the same two-year period) by £143,232. In fact, eight London boroughs appeared in the top 10 income-beating districts.
Looking further back paints a similar picture: over the past five years, 23 local areas in the UK have seen average house prices increase by more than total average pay, all of which are in London and the South East. The biggest gain was seen in Islington, where average property prices increased by £258,498 in five years, surpassing average take-home pay during the period (£135,457) by £123,041.
In 2014 alone, house prices nationally increased by 9%, resulting in average prices rising by more than total take-home pay in one-quarter of local area districts in the past year (95 out of 384). Prices rose particularly sharply in London (16%) and the South East (11%), so again, it's no surprise that these are the areas where house price gains have outstripped earnings to the greatest extent. For example, Mole Valley in the South East saw average house prices increase by a whopping £109,119 last year, outstripping average take-home pay in the area (£25,614) by £83,505.
"The housing market recovery over the past couple of years has resulted in some substantial prices rises in some areas of the country, particularly in London and the South East," said Martin Ellis, housing economist at Halifax. "This has resulted in homes increasing in value by more than total take-home earnings for the average homeowner in some areas of the country. This is good news for some homeowners, [but] at the same time, it is challenging news for those looking to buy their first home in such areas, with prices being pushed out of range for many young people."
Those living in income-beating areas will no doubt be thrilled to find that their home has earned more than they have in the last few years, but of course, we're not suggesting that you give up work and rely on your property for income. What you can do, however, is make those gains work for you – for example, what about remortgaging to a cheaper deal? Given that house prices have risen so rapidly in the last year or so, you could well find that your loan-to-value band has reduced, and that could mean you can benefit from a lower rate. A lower rate equals lower repayments, giving you more of your take-home pay to enjoy every month!
But, what if you're looking to take that first step on the ladder? All those rising prices may not be so welcome, but all is not lost. There are currently more mortgages available to first-time buyers than there has been in years, and as an added bonus, mortgage rates are at record lows! That, combined with reducing fees, means the cost of a mortgage is genuinely reducing, so even if your dream home is becoming more expensive, your repayments won't. All you'll need to do is build up a 5% deposit and you're good to go, so check out the top mortgages for first-time buyers, and you could soon be reaping the rewards of rising prices, too.
Disclaimer: Information is correct as of the date of publication (shown at the top of this article). Any products featured may be withdrawn by their provider or changed at any time.
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