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Gap between earnings and house prices at record highs, says Hometrack

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The gap between average income and house prices is reaching record levels in some parts of the country, according to the latest Hometrack UK Cities Index.

The study found that a lack of supply and strong demand for housing in London has pushed house prices up 86 per cent since 2009 meaning the capital now has a house price to earnings ratio of 14.2x – the largest in the UK and on record and more than double the UK ratio of 6.5x.

The year on year rate of house price growth across London has slowed to its lowest level for 3 years (9 per cent) and is expected to slow further towards low single digit growth in the next 6-12 months as demand weakens, the report says.

Cambridge and Oxford also have double digit price to earnings ratios which, in turn, are well ahead of the average over the last 12 years.

In Bristol, which has the fastest growing house prices in the index, has pushed the price to earnings ratio to 9.2x earnings. Three cities have price to earnings ratios that are below the average, namely Glasgow (3.7x), Liverpool (4.4x) and Newcastle 4.8x) where house price growth is starting to pick up off a low base.

Overall the annual rate of city house price inflation is 8.4 per cent as the upward momentum in house price growth holds firm in large regional cities post the outcome of the Brexit vote.

Hometrack insight director Richard Donnell says: “The impetus for house price growth is shifting from the affordability constrained cities in southern England to cities in the midlands and the north of England. Regional cities have more attractive affordability levels and house prices have significant potential upside for growth in the near term subject to the outlook for the economy.

“In cities where affordability levels are stretched, fewer households are able to participate in the market and this reduces levels of turnover and leads to lower levels of house price growth. This process is underway in London where the annual rate of growth is close to its lowest level for 3 years and where the top end of the market is already registering falling prices.

“The Autumn Statement focused on the longer term challenges of addressing housing supply. This will have limited impact on the current profile of housing affordability in the near term which will be dictated by market forces and households’ expectations for jobs and the cost of borrowing.”

 

City

Average annual earnings 2016(1)

Price to earnings ratio – current

Long run average (2002-16)

London

£33,720

14.2

9.6

Cambridge

£30,633

13.8

9.5

Oxford

£30,633

13.4

10.4

Bournemouth

£26,473

10.2

9.0

Bristol

£28,007

9.3

7.2

Southampton

£27,245

8.0

6.8

Portsmouth

£28,074

7.8

6.9

Cardiff

£27,633

6.9

6.5

Edinburgh

£29,104

6.9

6.5

Aberdeen

£28,824

6.3

5.7

Leicester

£25,343

6.2

5.7

Manchester

£26,310

5.6

5.2

Birmingham

£25,888

5.6

5.4

Leeds

£27,492

5.6

5.6

Nottingham

£26,530

5.2

5.0

Sheffield

£25,745

5.0

4.8

Newcastle

£25,698

4.8

5.1

Liverpool

£25,503

4.4

4.7

Glasgow

£30,304

3.7

4.1

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  • Colin Cloy 28th November 2016 at 4:41 pm

    The good news for first time buyers is that house prices have peaked and they will start to fall once BTL investors with highly geared portfolios start exiting the market from next April. This combined with the increase in new house building will mean there will be an excess supply of property which will dampen prices further. In the meantime as inflation takes off hopefully incomes will increase and the gap between house prices an earnings will narrow significantly over the next five years.

    David Cameron and George Osborne should be given credit for their bold move last year in removing the BTL mortgage taxpayer subsidy which has changed the housing market dramatically in favour of the FTB.