I’ve been following house prices on and off for a couple of years now. I’m very much looking forward to not renting anymore once the rest of my circumstances fall into place. When I first started work 2 years ago, many people were saying that I should get on the ladder as soon as possible because the bottom rung would only get further away the longer I waited. That was true for a little while but I had a feeling that house prices had been going up at such a rate for such a sustained period that something would have to change eventually.

One of the metrics that I think is particularly interesting and that you don’t see very often in the news is the ratio of average house price to average (annual) earnings, which both Nationwide and Halifax produce along with their other house price indexes. Here then are two plots of this metric that show where we’ve been and possibly suggest where we’re going…

Nationwide first time buyer house price to earnings ratio

Halifax all houses price to earnings ratio

Looking at these plots, clearly where we have just been with the average house costing around 6 times the average earnings is an above average value for the ratio compared to the last 25 years. Therefore the questions that I’m asking are how low will it go this time around?

As an interesting final thought, even at the top of the peak when you could get a mortgage of 5 times your annual salary, the FSA’s advice was that single people should borrow up to 3 times salary and couples 2.5 times combined salary.