At this moment in time the average UK wage is around £25,000 although in reality this differs markedly between different regions. There is some debate as to the average UK property price but it does seem to be in the region of £216,000 which is nearly 7 times annual income even after paying a 20% deposit. While it is only recently that inflation has sprung to life, and wage inflation is effectively negative in real terms for the first time since 2014, there are concerns that inflation could push further ahead and wage inflation could weaken.
If you cast your mind back 30 or 40 years many were able to obtain a mortgage on three/four times earnings and acquire their dream home. That situation has changed dramatically and now many first-time buyers are struggling to climb aboard the property ladder. It is a mixture of affordability, although again this does vary widely between different regions, and a lack of suitable stock to buy. The UK government has obviously assisted with the Help to Buy scheme but this will not last forever and in some areas of the country it is actually pushing property prices even further out of the reach of non-assisted buyers.
The Bank of England, which is an unbiased third party, believes that UK inflation will peak in the last three months of 2017 while wage inflation will come under pressure. Whatever happens with regards to Brexit talks the UK economy will go through a significant change over the next decade which may see wage inflation under pressure in the short term. If non-UK nationals working in the UK are not offered permanent residency then they may return to their former homelands leaving many positions to be filled.
A number of sectors have already come forward to suggest that any reduction in immigration will have a significant impact on the UK employment market. The technology sector is one in particular which is likely to suffer from a change in the UK employment market structure.
The consumer price index (CPI) is the main measurement of inflation in the UK and is likely to see upwards pressure due to a variety of reasons. One such reason is the fall in the value of sterling over the last year which makes it much more expensive to import goods and services. Experts believe that sterling will come under further pressure over the next couple of years which could have a material impact upon the consumer price index. If wage inflation remained subdued and the consumer price index continues to rise, this will effectively reduce the real spending power of many families across the UK.
If house prices maintain their current positive trend, this will make it more and more difficult for first-time buyers to climb onto the property ladder. The reality is that the UK government cannot subsidise the UK property market with various financial assistance for ever and a day. The Help to Buy scheme will eventually end leaving many first-time buys of the future forced to look at the rental market. The more demand for rental property the more demand for buy to let investments which will again place more upward pressure on UK property prices. Where will it all end?