Scottish house prices soar to nine times average salary

Scots struggle to get on property ladder as cost of homes rockets

House prices in some parts of Scotland have soared to nearly nine times the average salary raising fears the housing bubble has spread well beyond London.

Many commentators have been keen to play down talk of the property market becoming overheated outside of the English capital. But an analysis of prices compared to average local incomes has revealed a worrying gulf has opened up in almost every corner of the country.

In 2003 prices for standard properties in some parts of Scotland struggled to exceed three times local incomes. But 10 years later homes in more than half of the country cost more than five times the average salary with some as much as 8.75 times higher.

The revelations come after the RBS became the second major bank to tighten its mortgage lending conditions in a bid to cool the housing market.

It also follows an intervention from the International Monetary Fund who warned rising house prices were threatening the economic recovery.

Graeme Brown, of Shelter Scotland, said: “These figures support the fact that in Scotland, like much of the UK, home ownership is being pushed further out of reach, especially for young people.

“This is compounded by the chronic shortage of social and affordable housing which means it is harder than ever for people to find a home.

“Until the gap between salaries and the cost of housing closes and the supply of housing starts to meet demand, affordability will remain the burning question for people on the lowest incomes.”

Analysis of Government data shows in 2003 the average cost of a home in Scotland was £71,000, while the median salary was £16,509 making a home 4.3 times the average salary.

But in 2013 homes were £125,000 but wages had only increased to £21,608 meaning the average Scot wanting to buy a house would have to pay 5.78 times their salary.

Across the country there is huge variation in home prices compared to local salaries, with some regions twice as affordable as others.

The most costly area last year was Aberdeenshire, where homes were £198,000, equivalent to 8.75 times the £22,624 average salary. In 2003 a house in the area cost £80,000, just 4.79 times average local incomes.

Next highest was Midlothian where £151,750 homes were 7.47 times the £20,306 average salary last year, compared to 5.05 times the wage in 2003.

In total there were nine districts where house prices were more than six times the average salary last year and just one area East Ayrshire where homes were less than four times local wages.

By contrast, in 2003 the least affordable was Edinburgh, where £113,000 homes were 5.88 times salaries, while there were 14 districts where people could buy for less than four times the wage.

Other studies have shown that house prices in parts of London and the South East are now more than 10 times local wages.

Traditionally, home buyers were only allowed to borrow three or four times their salaries for a mortgage. However, prior to the financial crisis of 2008, it was not uncommon for lenders to offer loans up to six times their wages.

Banks have returned to more traditional lending criteria leaving potential buyers in the most expensive areas in despair of ever getting on the housing ladder.

But other parts of the country have been slow to recover and a recent UK-wide survey revealed 13% of homeowners in Scotland remain trapped in negative equity.

The conflicting picture shows the huge dilemma facing the Bank of England on whether to put up interest rates.

The measure has traditionally been used to curb inflation and cool demand in the housing market by making mortgages less affordable. But a rise could also tip millions of households into financial disaster, with some experts warning it would cost the average family nearly £3,000 a year in extra mortgage payments if rates returned to levels that were typical before the credit crunch.

Tory housing spokesman Alex Johnstone, said: “A buoyant Scottish housing market is a good thing but it is vital a strong rise in prices does not come at the expense of providing affordable housing. It is also important to recognise that not all of Scotland is benefiting from the housing boom.”

A Scottish Government spokesman said: “The supply of affordable housing continues to be a high priority for us and we are working with the entire housing sector to increase the supply.”

On Thursday Registers of Scotland said house prices had risen by more than a third over the last decade. A day later Christine Lagarde, head of the IMF, called on UK banks to limit high loan-to-income mortgages.

She also said a chronic shortage of new houses was pushing the country towards a dangerous property price bubble.

Case Study “I was in a frantic race to buy flat”

When Anna Quinn began looking to buy a flat in the west end of Glasgow, she was shocked to find herself engaged in a rat race. The married 32-year-old found flats in the sought-after district were being snapped up at a furious rate, often with winning bids well beyond the asking price.

After missing out on two, Anna, who works as an accounts director for a digital creative agency, has had an offer accepted on a two-bedroom tenement flat.

She said: “They are going way over value. It is quite difficult to get one at the moment.

“It looks like people have not been able to get mortgages for quite a while so they will have been renting or living with parents. Now that mortgages are more accessible there has been a frenzy.

“We saw the flat at 4.55pm on the Friday, phoned up and made an appointment to see it on the Saturday. We put an offer in on the Tuesday after the bank holiday, which they accepted.”