Housing Affordability

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Our index measures the affordability of average UK house prices in terms of income per household and the current average mortgage rate. The house price per disposable-income/household ratio is amortised at the going rate of mortgage interest over a 25-year term and assuming the whole amount is mortgaged. The analysis of house price affordability based only on the house price to earnings ratio relies on the notion that the size of the desired proportion of income allocated to buying a house is stable. But the actual required proportion of income varies with the rate of interest. The rate of interest has the largest effect on affordability and to exclude it in the analysis is a mistake. In addition, using earnings as a measure of income ignores the effect of an important structural shift over the past two decades - the rise in the number of two-earner households.

The Lombard Street Research Housing Affordability Index is published quarterly following the release of the UK Economic Accounts.

The next update will be published on this site on July 6th, 2008.