February 21, 2014 6:58 pm

Rising UK house prices hit professionals hardest

Middle-class professionals have been hit harder by rising house prices than any other group, forcing them to buy in cheaper areas and, in doing so, put upward pressure on prices in areas where middle-income households would typically enter the market.

The number of electoral wards in England and Wales whose average property price is above the affordability threshold for a household in the 95th percentile by earnings has risen from 101 (1.1 per cent) in 1995 to 489 (5.7 per cent) in 2012.

Prices have shown an upward trend across the breadth of the UK housing market over this period, but the increase has been faster and more pronounced at the top end than anywhere else.

Incomes, too, have risen most rapidly for the wealthiest in society, but relative to net earnings, housing costs have risen at a faster rate for households just below the super-rich than for any other group across the entire income distribution.

These “cling-on” professionals – former members of an über middle class whose financial fortunes have decoupled from those of the wealthiest – have found themselves subjected to a unique combination of pressures.

Property prices in the section of the market at which they would most likely be looking to enter have risen faster than in any segment other than the most expensive five per cent of neighbourhoods, but their net incomes have grown at precisely the average rate seen across all households.

The result has been a rapid contraction in the number of areas where they can reasonably afford to buy, leaving them forced to look lower down the market – in turn limiting the options for middle and lower-earning households.

Nineteen years ago, almost half of all unaffordable wards for the 95th percentile were in London, with two-thirds of those in just three boroughs. By 2012, mortgage payments on the average property in more than a quarter of wards in London had risen above the threshold and there were unaffordable areas in every English region.

Government and industry guidelines suggest a threshold of 35 per cent of net household income as the point above which housing becomes unaffordable. In 2012, the average household in the 95th percentile of UK earners brought in £67,340 net – setting a ceiling of £23,569 to spend on housing costs.

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