As property prices continue to soar due to the current supply and demand imbalance, the housing market is at risk of collapse.
According to recent data from Resolution Foundation, more than a quarter of the salary earned by those from low to middle income households is being spent on housing costs. In 1995, the figure was 18% of income being spent on housing, in comparison to the figure today of 26%. In London, the figure increases to 28% of income covering housing costs.
For those receiving higher income levels, affordability doesn’t appear to be a problem, as high income households spend 18% on the cost of housing, in comparison to the 1995 levels of 14%.
Data released from the Office for National Statistics indicates that the average price of a house in the UK is now £291,504. In London this figure soars to £551,000. However, average income has only increased by 3% since 2007-08 and stands at £24,300. Research by Citi indicates that the ratio of house prices to level of earnings is close to a pre-crisis peak.
As interest rates are at their lowest since 2009, borrowers are comfortable taking on high levels of debt, as the cheap cost of borrowing means a mortgage is manageable. However, when interest rates do rise, more people could find themselves facing a financial crisis.
Speaking to a mortgage adviser who has taken CeMAP training will ensure that you can afford a mortgage, even when the interest rates do eventually increase.
