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Public sector pay cap and the 75% affordability gap

The latest research by online estate agent eMoov highlights the detrimental impact the 1% annual pay cap has had on public sector employees where their property purchase potential is concerned

July 4, 2017

average house price

In their latest research,  online estate agent eMoov has looked at the annual average wage for the public sector since the 1% annual pay cap was implemented in 2012 and what that means in terms of the price of property available to those working in the public sector now, and by 2020.

Double whammy

Since 2012, the average UK house price has increased by more than £50,000, up 31.12%.

However, in the same time, a 1% cap on public sector wages means that wages have grown by less than one fifth of the average house price at 6.03%.

What this means is that as a typical salary multiple for a mortgage that the average public sector worker can afford a home that is significantly inferior to the home they could have afforded five years ago, due to the double whammy of house price inflation going against them and their static purchasing power where mortgages are concerned.

Mind the gap

This gap between the cost of the average house price and the property purchase potential of the public sector salary has increased year on year.

In 2012, the average house price was £167,854, but the average public sector salary was just £25,060. With a mortgage lender typically lending 4.5 times this wage and a 10% deposit of £16,785, a public sector employee could only afford to buy a property at a value of £129,556 – a difference of 29.56% between that and the average house price.

Since then the gap has continued to widen, increasing by 29.59% in 2013, 37.27% in 2014, 41.61% in 2015 and 49.45% in 2016. So far 2017 has seen the largest gap emerge at 55.46% with the average house price topping £220,094, yet the average public sector wage has continued to stagnate at £26,571. As a result, a public sector employee today can only secure a mortgage for a property valued at £141,579 when including the 10% deposit of £22,009.

A bleak forecast for 2020

Based on the last three years of both house price and public sector wage growth the forecast for 2020, the proposed year for the 1% cap to run to, looks even bleaker. By then the average house price could be in the region of £263,940 with the public sector wage reaching just £27,581.

If this were the case, then public sector employees would only be able to secure a mortgage on a property to the value of £150,507 with a 10% deposit of £26,394, stretching the gap to an eye-watering 75.37%.

Founder and CEO of eMoov.co.uk, Russell Quirk, commented:

“The plight of today’s aspirational homeowner is a well-documented one, but it isn’t just a matter of age, and the year you were born, the sector in which you choose to build a career can also have huge implications on your chances of getting on the ladder.

It is very disappointing that those arguably the most deserving of a foot up on the ladder are the ones left well off the pace.

If the cap were to remain in place until 2020, the difference between salary, amount of mortgage available and the average house price will be cavernous for those in the public sector.”

 

Year

Average Public Sector Wage Average House Price 10% Deposit  Price Based on Mortgage Availability on Public Service Wage (Wage*4.5+Deposit)

Difference

2012

£25,060 £167,854 £16,785 £129,556 29.56%

2013

£25,425 £170,335 £17,034 £131,445

29.59%

2014

£25,633 £183,532 £18,353 £133,703

37.27%

2015

£25,894 £192,225 £19,223 £135,744

41.61%

2016

£26,363 £208,443 £20,844 £139,476

49.45%

2017

£26,571 £220,094 £22,009 £141,579

55.46%

2020 £27,581 £263,940 £26,394 £150,507

75.37%

2012 to 2017: The Average House Price Has Increased by 31.12%. The Average Public Sector Wage Has Increased by 6.03%

 

Research provided by Russell Quirk, eMoov


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2 Comments

  1. Dear Mrs Collins,

    We are a member-led organisation, representing homeowners in the media, lobbying for their interests in government, providing quality services and campaigning against bad practices in the industry. You may find our report an interesting read: The Homeowner Survey 2016. Our survey, polled by YouGov, gives a state of the nation report on the biggest concerns and latest trends affecting homeowners and those aspiring to own. Our work for HomeOwners and pushing for change is continuous, so thank you for your comments which we shall take on board.

    Best wishes,
    Sophie
    HomeOwners Alliance

    Comment by Sophie Khan — July 14, 2017 @ 2:32 pm

  2. Can i ask what is being done about these figures and how on earth we are supposed to get on the housing ladder . Isnt it about time somebody stood up and put a stop to the ever increasing house prices , we are being firced to rent houses at ridiculous prices that also rise all the time , we are totally stuck in a very unfair situation.

    Comment by Mrs collins — July 8, 2017 @ 3:15 pm

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