Capital appreciation over the long term is one of the things the UK property market is best known for, but UK house prices have significantly outpaced wage growth.
For many years, people have spelled out the end of the rise of property values in the UK, speculating that they will hit a ceiling or are set for a fall – but looking at far-ranging historic figures, this has never happened.
The 2008 financial crisis caused the biggest ‘blip’ in UK house prices in recent times, but solid recovery began the following year, and values have continued to climb upwards since then. For property owners over this period, this means sustained capital appreciation to today’s current figure, and forecasts show even more growth over the next five years.
A new report from Mojo Mortgages has revealed that over the 50-year period between 1974 and 2024, UK house prices have risen by a huge 2,534%, from £10,027 in 1974 to £265,012 (using Nationwide’s House Price Index for the second quarter of each of these years).
Demand and supply play one of the biggest roles when it comes to pricing, with the pace of building in the property market often struggling to keep up with the growing population and the number of people looking to buy. The state of the economy is another factor, with the UK having one of the world’s most stable economies over the long term.
Wage growth vs UK house prices
To today’s buyer, £10,000 seems exceptionally cheap for a property, even in 1974. And, in fact, it is, when comparing wage growth over the past 50 years with the rise of property values.
According to Mojo Mortgages, while UK house prices have soared by 2,534%, salaries have only risen by 1,791% in the same time period, which is nearly half the pace of growth. This drastically changes the outlook for first-time buyers in today’s market, who are likely to find it much more difficult to get onto the property ladder.
Back in 1974, only a 5.36% deposit (as a proportion of the total property value) was needed for the average purchase, equating to £537. Today, an average buyer stumps up a deposit of 22%, which is £58,303 – a difference of 10,575%.
In terms of the average income of two people, 50 years ago the couple would need to stump up 15.05% of their income, based on an average pay of £3,557 per couple. This compared with 86.65% today, based on the average couple’s combined salary of £67,288. This means the average couple must theoretically save for 11 years and three months, compared with just three months in 1974.
Naturally, this has also had an impact on the average age most people get onto the property ladder. In 1974, the average first-time buyer was just 26 years old. Today, the average age is 33 years and eight months.
Mojo’s report notes: “These numbers tell a compelling story about the changing journey to homeownership. In 1974, you could save up for a deposit in just three months, but by 2024, that timeframe has stretched to an extra 11 years. This dramatic shift highlights the impact of rising prices and stagnant wages, making the dream of owning a home feel increasingly distant for many aspiring buyers – even for those buying with someone else.”
A knock-on effect on the rental market
While UK house prices have continued to climb over the years, and this stability and growth looks set to continue – making the UK property market a popular investment choice for capital appreciation – homeownership and rental sector trends have shifted.
With people now getting onto the property ladder later in life than ever, for both financial and lifestyle reasons, demand in the rental market has soared to its highest levels over recent years.
The private rented sector has also changed, with much more professionalisation in the sector and regulations that have shifted it from being a necessary step to homeownership, towards a more popular lifestyle choice for the likes of young professionals, single people and families alike.
Unless there are major changes within the housing market, and as UK house prices continue to climb at a faster rate than wages, this seems unlikely to change in the near future.
If you’re a property investor looking to invest in a lucrative buy-to-let property to capitalise on rising UK house prices, get in touch with BuyAssociation today.
