House prices: First-time buyers will need to earn £64,000 by 2020
04-15-2016
This is the estimate in a report published by housing charity Shelter, which City AM notes was based on forecasts produced earlier this year for Santander by Professor Paul Cheshire, of the London School of Economics.
With a cumulative rise in valuations of 23 per cent predicted by 2020, the average price for a starter home will reach £270,000. Using current average income multiples, Shelter says this would mean a salary of £64,000 would be needed to secure a mortgage.
Even at the base case of a five per cent deposit, a first-timer would need to be able to stump up a down payment of £13,500 and, using the Bank of England's ideal maximum earnings multiple of 4.5, be earning the best part of £59,000.
In comparison, Shelter notes, at current growth rates of around two per cent, the average wage will have risen from £27,600 to £29,532.
In London, where starter house prices could be well in excess of £550,000 by that time, the average buyer may have to put down a deposit of at least £28,000 and be earning £118,000.
"With the situation only set to get worse, Generation Rent will be forced to resign themselves to a life in expensive, unstable private renting, and wave goodbye to their dreams of a home to put down their roots in," Campbell Robb, the chief executive of Shelter, told the Daily Mail.
In this context, it is perhaps welcome that the Royal Institute of Chartered Surveyors (Rics) reckons houses prices might fall overall in the coming months, especially in the capital and other hotspots in the south-east.
It blames in particular the uncertainty caused by the EU referendum and upcoming local elections, including for the London mayor, reports the BBC.
But Rics believes this effect will be short-lived and that the underlying imbalance of supply and demand will set prices rising steadily again. It is similarly predicting a cumulative increase of around 20 per cent by the end of the decade.