Let’s first update the key data being used to calculate both UK House Value and UK House Affordability:
- UK Nominal House Prices. In recent posts we have been comparing the different UK House Price Indices however for now we will stay with using the Nationwide Historical House Price dataset for this topic. September 2012 house prices were reported as £163,964. Month on month that is a fall of £765 (0.5%). Year on year sees a decrease of £2,292 (-1.4%).
- UK Real House Prices. If we account for the devaluation of the £ through inflation (the Retail Prices Index) we see a very different story. Month on month that £765 decrease turns into a decrease of £1,761 (-1.1%) and year on year that £2,292 decrease grows to £6,880 (-4.2%). In real terms prices are now back to those around March 2003.
- UK Nominal Earnings. I choose to use the Office for National Statistics (ONS) Average Weekly Earnings KAB9 dataset which is the seasonally adjusted average weekly earnings of both the public and private sector including bonuses. August 2012 sees earnings rise to £473. Month on month that is an increase of £2. Year on year the increase is £10 (2.2%). With inflation (the Retail Prices Index) running at 2.9% over the same yearly period purchasing power of those that work continues to be eroded.
- UK Mortgage Rates. The proxy I use to monitor mortgage interest rates is the Bank of England dataset IUMTLMV which is the monthly interest rate of UK resident banks and building societies sterling Standard Variable Rate (SVR) mortgage to households (not seasonally adjusted). September 2012 sees this reach 4.28% which month on month is a tiny uptick of 0.01% and year on year is an increase of 0.18%. So while the Bank of England holds the Bank Rate at 0.5% out in the real world we are seeing mortgages creeping up very slowly.