Dave Levy
2 min readSep 17, 2023

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by Brett Jordan, from Unsplash

I came across the video from the i linked to below and wondered how much the assertion that the UK has never had such a malign nexus, of high inflation, high interest rates and high consumer debt. I was shocked at the Schroders report that the price to income ratio is now nine i.e. a house costs nine times the purchaser’s income.

The price to income ratio is the nominal house price index divided by the nominal disposable income per head and can be considered as a measure of affordability.

OECD

I found a press release from Schroeders on affordability, which is where I found a detailed description in chart form of the UK affordability ratio’s history.

from “What 175 years of data tell us about house price affordability in the UK” at shroeders.com

I also found a press release by PWC pointing at a survey/report they had conducted which reported that gross consumer debt is for the first time ever in excess of £2Tn.

Total household debt in the UK now exceeds £2 trillion for the very first time — the equivalent to £71,000 per household, and is just below national GDP (£2.2 trillion).

PWC Press Release 27 Mar 2023

The argument is that mortgagees have borrowed to the maximum and can extend themselves no more and that this is shown by gross consumer debt.

The video which set me off down this road, is

where “The i” interviews Rachelle Earwaker from the Joseph Rowntree Foundation. She presents the obvious, that increasing interest rates, and the fact that many home owners have borrowed the maximum they can afford, and that their disposable income is being reduced by increasing inflation is likely to cause a “housing price correction”. This will reduce the value of the collateral which home owners have borrowed against. Earwaker focuses on the effect on the consumer market and domestic finances, but the fall in collateral value, and mortgage defaults is what caused the financial crisis of 2008. However in my article, Intergenerational Equity, I repeat the observation that a lower proportion of the housing stock is now mortgaged compared with the 80s and so the increase in interest rates is painful to less people.

What set me off on this, was the assertion that this is the worst its been, on housing affordability, private debt and increasing interest rates. The Schroders chart suggests this might be true.

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Dave Levy

Brit, Londoner, economist, Labour, privacy, cybersecurity, traveller, father - mainly writing about UK politics & IT, https://linktr.ee/davelevy