How did property fare in the last decade?

Nationwide have released their house price averages for December 2019, which means another decade of data from them is complete. Having started the decade at £162,887, UK house prices increased an average of 33% in the 2010’s to finish at £215,925.

In nominal terms an increase of just over £50,000 seems like a huge jump. In percentage terms though, that 33% rise in ten years is actually the lowest house price growth in a decade since the 1990’s, which is currently the weakest performing decade on record (with a rise of 21%). When you consider house prices in the 1980’s rose 180% and in the 2000’s they grew by 117%, you might wonder why the media portray house prices as out of control.

The problem is that wage growth only rose by 20% in the 2010’s i.e. around a third less than house prices. So, whilst rocketing house prices aren’t necessarily the problem, affordability very much is. In fact, the UK first-time buyer house price to earnings ratio currently stands at 5.0, up from 4.4 at the end of 2009, and is edging ever closer to 2007’s record high of 5.4. This means saving for that all-important deposit has become increasingly difficult; a typical 20% deposit is now equivalent to the entire pre-tax income of an average earner.

The last decade also saw a significant widening in the gap between the least affordable and most affordable regions. Whilst the whole of the UK was hit by the 2007-2009 financial crisis, London was quicker to recover, whereas many regions (particularly up North and in Northern Ireland/Scotland/Wales) have struggled. This is demonstrated by London being the top performer in the 2010’s, with house prices rising an average of 66% i.e. twice as much as the UK average. In contrast to this, house prices in Northern Ireland are a mere 2% higher now than they were at the end of 2009.

The only saviour to rising house prices has been a strong fall in interest rates. At the beginning of the decade the average new mortgage rate was around 5%, whereas by the end of 2019 this had more than halved to 2.4%. This meant first-time buyer mortgage payments as a percentage of take-home pay dropped throughout the decade in every region except London and the Outer Metropolitan area.

So, buying a property definitely became tougher in the 2010’s, with house prices accelerating higher than wage growth. And because of this rise in nominal terms, the amount of money needed by way of a deposit grew, making home ownership seem further away for many. If you could get over that hurdle though, huge drops in interest rates meant servicing the mortgage on a monthly basis became cheaper. And it seems first-time buyers are fighting back, with more than double the 155,000 recorded in 2009 jumping onto the property ladder in 2019.

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