The latest research by leading online estate agent eMoov.co.uk highlights the detrimental impact the 1% annual pay cap has had on public sector employees where their property purchase power is concerned.
The agent analysed the annual average wage for the public sector since the 1% annual pay cap was implemented in 2012, and what that meant in terms of the price of property available with the mortgage approval rate at 4.5 times that wage (including a 10% deposit).
Public Sector Property Purchasing Power Plummets, Finds eMoov
eMoov then compared this to the average house price at the time and the difference between the two, as well as how this gap has widened since.
Finally, with the 1% cap intended to stay in place until 2020, the agent also looked at how much further this gap could widen in the next three years.
Since 2012, the average UK house price has risen by more than £50,000 – up by 31.12%. However, at the same time, a 1% cap on public sector wages means that they have grown by just 6.03%. What this means is that as a typical salary multiple for a mortgage, the average public sector worker can afford a much inferior home than they could have afforded five years ago, due to being hit by both house price inflation and their static purchasing power where mortgages are concerned.
The 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 £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 to 29.59% in 2013, 37.27% in 2014, 41.61% in 2015 and 49.45% in 2016. So far, 2017 has recorded the largest gap, of 55.46%, with the average house price topping £220,094, while 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, including the 10% deposit of £22,009.
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 an average of just £27,581. If this were the case, then public sector employees would only be bale to secure a mortgage on a property worth £150,507 with a 10% deposit of £26,394 – stretching the gap to a huge 75.37%.
The Founder and CEO of eMoov, Russell Quirk, comments on the findings: “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, the amount of mortgage available and the average house price will be cavernous for those in the public sector.”