The link between house price growth and earnings across the country, and the extent to which it has been “broken” in London, has been highlighted by new analysis from real estate adviser Savills.
Savills said regions such as the North West, Yorkshire and Wales show a “very strong link” between earnings and house prices, which is based on analysis of new data from the ONS.
Across the UK as a whole the average house price to earnings ratio stands at 10.7, compared with 18.0 in London.
Lawrence Bowles, senior research analyst at Savills, said: “The performance of housing markets in the north of England and Wales is linked to what people can afford to borrow based on their incomes.
“House prices remain relatively affordable to aspiring local buyers, so as earnings continue to grow, we expect to see continued house price inflation.”
At the other end of the spectrum, house price inflation and earnings growth in London are almost entirely dislocated. In 2015 house prices rose 11% while earnings rose just 1%; conversely earnings rose 7% in the two years to September 2019 while house prices fell by 2%.
Bowles added: “Our analysis shows that housing affordability in London is far more stretched than in any other region, leading to extremely high deposit requirements and higher loan to income borrowing.
“Any further house price inflation across the mainstream market will rely on that affordability pressure easing as earnings rise.”