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Are Houses Unaffordable?

Updated: Sep 1, 2022

The following is an article on UK housing affordability by Ludgrove Property. The company is rated one of the UK's best property buying agencies by Spears, Prime Resi and E-Private Clients. Case studies of their work can be found here.

It is often said UK property is unaffordable and prices are unsustainable. Commentators taking this line usually cite the chart below looking at the P/E ratio or average price of property relative to earnings. The multiple is currently a record 7x earnings, substantially above the long run average suggesting a correction is well overdue.

We believe this measure is flawed for the following reasons:

* First, the ratio uses the wrong denominator, namely individual earnings as opposed to household earnings. In the 1980's most mortgaged households were single income households (and this ratio would have been relevant then) whereas today the majority are dual-income households. Using the P/E ratio to measure affordability therefore is misleading.

* Second, the ratio fails to take into account the changes in interest rates over the last 40 years. Property is a great deal more affordable in 2022 with interest rates are 1.75% compared to 1989 when rates were 15%. Of course interest rates can and will change but the Price/Earnings ratio ignores this fundamental change in the affordability of mortgage debt.

* Third, mortgaged households make up a relatively small percentage of the total housing stock. In 2020 just 28% of UK properties were owned with a mortgage. 36% of properties were owned outright and the balance (36%) are rental properties. (Source: ONS). Furthermore the share of mortgaged properties has been on a downward trend over the long term, once again undermining the case for using the P/E ratio to assess affordability.

We believe a better measure of housing affordability is mortgage payments as a percentage of net disposable income/take home pay. This ratio shows mortgage payments are around 30% of take home pay, near the low of the 20 year range and some way off the peak 45-50% levels seen in 1990 and 2008 when house prices fell substantially:

Finally it is worth pointing out that if one used the P/E ratio to time entering or exiting the market, a buyer would have exited the market in 2002 (when the ratio hit its 1989 historic peak) missing out on circa 40% upside to 2007 and then one would have stayed out of the market in 2010 (while the P/E ratio was still at 1989 peak levels), missing out on approximately 80% uplift in property prices over the next 12 years. In effect you would have missed out on the last 20 years of price appreciation!

... Caveat emptor!

To discuss your property requirements feel free to contact us. We'd be delighted to hear from you:

+44 (0)207 889 2860 or


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