Why wage inflation in isolation will not help first-time buyers

Over the last few years, we have seen a significant house price rally even though the rate of growth has recently slowed in light of Brexit. There were hopes that as the UK economy improved, concerns within the housing market continued, this would see house prices stagnate as wage inflation increased. While wage inflation has increased over the last few months is it enough to close the gap between affordable property and actual property prices?

Wage inflation

In a rather bizarre situation, unemployment fell by 12,000 to 1.41 million at the end of May although wage growth fell from 2.8% to 2.7%. Unemployment is now down to its lowest level since 1975 at just 4.2% of the working population. So, if unemployment is down, why is wage inflation slowing?

House price inflation

It is no secret that UK house prices are under pressure and the market is “stagnant” at best with experts expecting yet more softening of prices in the short term. Despite this pressure, average UK house prices increased by 3.3% per annum to the end of July 2018. It is also worth noting that extensive pressure on London house prices is dragging the average UK house price figures down so, excluding London, this figure would be higher.

UK economy

The UK economy is expected to show modest growth in 2018 of around 1.3% falling to 1.2% in 2019. There is concern that these figures could be revised downwards in light of the Brexit challenges but with the UK government seemingly gaining the upper hand in negotiations, concerns about a Brexit no-deal seem to be diminishing.

UK base rates

The Bank of England recently increased UK base rates from 0.5% up to 0.75% with the Monetary Policy Committee voting 9-0 in favour of the rise. Even though the UK economy is struggling it looks as though the UK employment market is extremely strong hence the reason for an increase in base rates. However, with base rates still near historic lows, an increase to just 0.75% is not exactly earthshattering – but it could be the start of a sustained uptrend.

Challenges for the UK property market

While the recent increase in UK base rates was much expected, the fact that there are probably more to follow in the short to medium term could lead to new challenges for the UK property market. You could argue that property prices have benefited from cheap finance in light of the 2008 US mortgage crisis which led to a worldwide economic collapse and historically low interest rates. So, while UK house price inflation is still running significantly ahead of wage inflation perhaps there could be some respite for first-time buyers in the short term?


It is very difficult to predict the short to medium term performance of the UK economy, house prices and wage inflation. There are so many contradictory indicators although the Bank of England has been focusing upon a strong employment market prompting an increase in base rates. Even if wage inflation was to move ahead of house price inflation for a prolonged period of time, the vast majority of first-time buyers are already well priced out of the market. We need new houses, we need innovation and we need them now!

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