Week 30, 2013: UK Housing Affordability

Summary: The latest Halifax House Price Index report was released recently, and so we have updated our annual chart on housing affordability. Since our last look at this topic, affordability has decreased, although mortgage affordability is still increasing.

What does the chart show? The blue line, measured against the left hand axis, is the house price to earnings ratio. This is calculated by dividing the standardised average house price with average annual earnings, both for the whole of the UK. The dotted blue line represents the average over the period. The red line, measured against the right hand axis, is the mortgage affordability index. This measures the percentage of the average disposable income that a mortgage on a home costing the average amount would represent; for example, a mortgage taken out today on the "average house" would represent 27.5% of average disposable income. As above, the dotted red line is the average for the period. In both cases, a lower number represents more affordable housing.

Why is the chart interesting? The figures seem to have been revised since last year, when it appeared that the house price to earnings ratio had dropped below the average for the first time since 2002. It now looks like this was not the case at all, and affordability has since decreased further as house prices have begun to pick up. On the other hand, mortgages continue to become more affordable, taking up less of the average household's disposable income.