UK Financial Data – How have the past 25 years treated you?

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UK financial data – How have the past 25 years treated you? Part I

How have the past 25 years treated you cover

Photo credit: Our minds

We hear a lot of reports in the financial media noting “record breaking years”, whether it is house price growth, increase in shares, or whatever else. Therefore, in a series of articles, we are ranking the past 25 years in order to show which years are the best and worst for different people:

  • Average salary earners
  • Minimum wage earners
  • People trying to buy a first time home
  • Current homeowners

In our next article, we will perform the same analysis for the following groups:

  • Potential buy-to-let landlords
  • Current buy-to-let landlords
  • Investors – Someone invested in UK stock markets
  • Savers – Someone saving in a cash ISA

If you have any ideas of other “groups” which we should be ranking, please let us know.

 

Average salary earners

Rank definition: The year-on-year change in real wages. We assume that all average salary earners would like a high year-on-year annual increase in real wages. 25 = best year ; 1 = worst year.

Ranking for real wage increases

The best of times: The millennium. Five of the top seven years of real wages were noted in between 1998 and 2002 inclusive, with annual real wage increases of up to 3.4% noted in 2001.

The worst of times: The past few years have been horrible! All four of the worst four years in the data range come in the last four years, with annual real wage decreases of 2.2%, 2.3%, 1.9% and 1.8% between the years of 2010 and 2013 respectively.

Conclusion: anyone currently complaining that their salary is not keeping up with price increases is probably telling the truth.

Data source: Measuring Worth

 

 

Minimum wage earners

Rank definition: A mix on year-on-year changes in minimum wages and the minimum wage as a percentage of the average wage. We assume that minimum wage earners would like a large year-on-year increase in the minimum wage and a earn a higher percentage of the average wage. 13 = best year ; 1 = worst year (minimum wage legislation only introduced in 1999).

Ranking for minimum wage earners

The best of times: 2004 and 2006 were the best two years for minimum wage earners. In fact, the plight of the minimum wage earner is usually better in years where the average wage earner’s salary falls, as increases in the minimum wage are regulatory and fixed.

The worst of times: The first couple of years of minimum wage regulation were not hugely kind to minimum wage earners, who also saw a slump in the late 00s.

Conclusion: Despite the huge current push (UK & worldwide) for minimum wage increases, the recent years have actually been relatively kind for minimum wage earners.

Data source: The Guardian

 

People trying to buy a first home

Rank definition: A mix of house price to average salary ratio and mortgage repayment to average salary ratio. We assume a potential first time buyer would like a low house price to average salary ratio (so they can afford the deposit on the house) and a low mortgage repayment to average salary ratio (so they can afford to make mortgage repayments). 25 = best year ; 1 = worst year.

Ranking for first time buyers

The best of times: The early 90s were great for first time buyers as the house price to salary ratio was consistently low (in 1995, the average house price under three times the average salary). They were also boosted by interest rates becoming more manageable compared to salaries (mortgage interest on an 80% LTV mortgage was under 15% of the annual salary in 1993 compared to over 40% in 1989).

The worst of times: As expected, the surge in house prices between 2003 and 2007 made this a torrid time for first time buyers. In 2007, the average first time home price soared to over 7 times the annual average wage. This was coupled with mortgage payment to salary ratios of around 35-40% (the highest in our data set). When did yours truly buy his first home? Of course, July 2007!

Conclusion: There is currently a lot of complaining regarding how hard it is to get on the housing ladder. However, the current 3-4 years have actually been fairly average. Whilst the house price to salary ratio is fairly high (being between 5.7 times and 6 times average salaries since 2008 compared to the long term average of 4.8 times), record low mortgage interest rates mean that mortgage payments are very affordable (current 12.5% of the average salary in 2013, compared to highs of 41% in 1989 and 39% in 2006).

Data source: Nationwide House Price Index and FedPrimeRate

 

 

Current Homeowners

Rank definition: For current homeowners, we shall be using the same information as for first time buyers, but interpreted in a slightly different manner. Current homeowners will be interested in house price increases each year, and maintaining a low nominal mortgage interest rate. 25 = best year ; 1 = worst year.

Ranking for current homeowners

The best of times: The 00s and recent years have definitely been better for homeowners than the tough days in the 90s. The best time was the early 00s, with the best four years all falling between 2001 and 2004. Average house price increases over these years was 17% per annum (this equates to a huge return once we considered the added advantage of debt leveraging through a mortgage) whilst mortgage interest rates, measured at LIBOR + 2%, were fairly low (averaging 4.1% over these four years).

Equally, the next best five years for homeowners have been between 2009 and 2013. Whilst average house price increases have only been 2.2% per annum in this period, mortgage interest rates averaged a record low of 2.9%. It has generally been a good decade for current home owners.

The worst of times: The early 90s were rough! The average house price in the UK fell, on average, by 1.5% per year between 1989 and 1995. In fact, it took until 1998 for the average house price to exceed the 1989 average house price (10 years without growth). The real, inflation adjusted, house price (using 2013 as a base) was £138k in 1989. It took until 2002 for real house prices to once again exceed this level. For homeowners, this was a painful 14 years!

To compound this misery, mortgage interest rates were at an average of 7.9% between 1989 and 1995.

Conclusion: If you are a current homeowner thinking about moaning about your current position, don’t. Just think back to, or if you are young ask your parents about, how tough things were in the housing market in the early 90s. Hopefully that should give you some perspective!

Data source: Nationwide House Price Index and FedPrimeRate

 

More to come

Come back in a couple of days to check out what the past 25 years have looked like for:

  • Potential buy-to-let landlords
  • Current buy-to-let landlords
  • Investors – Someone invested in UK stock markets
  • Savers – Someone saving in a cash ISA

If you have any ideas of other “groups” which we should be ranking, please let us know.

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One thought on “UK Financial Data – How have the past 25 years treated you?

  1. I think I have more reasons now to keep telling my family that my salary just can’t keep up with the price increases! Maybe they’ll start spending less and saving more haha. Great post!

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