UK houses cost six times average earnings despite price growth slowdown

UK house price growth slowed in October but the typical home now costs six times the average annual wage, Nationwide said on Wednesday.

House prices rose 4.6% in October from a year ago to an average of £205,904, slowing from 5.3% growth in September. Compared to a month ago, prices in October were flat following a 0.3% month-on-month rise in September.

Nationwide’s chief economist Robert Gardener said: “Measures of housing market activity remain fairly subdued, with the number of residential property transactions around 10% below the levels recorded in the same period of 2015 in recent months.

“However, this weakness may still in part reflect the after-effects of the introduction stamp duty on second homes introduced in April, where buyers brought forward transactions to the first quarter to avoid additional stamp duty liabilities.”

The housing market remains supported by solid labour market conditions and low borrowing costs despite uncertainty on the economic outlook following Brexit, Gardner added.

A shortage of homes on the market and modest rates of housing construction are likely to keep the demand/supply balance fairly tight, he said.

While house price increases have been stable over the past 18 months at an average of 5%, it exceeds average wage growth.

“Indeed, over the past three years, house prices increased by around 20% while wages have risen by around 6%,” Gardner said.

“As a result, the typical house now costs six times average earnings, up from 5.3 times earnings in 2013.”