Tue. October 23, 2012 @ 12:56 pm
Falling rates counterbalanced the impact of falling incomes
Disposable income as measured by the ONS has grown consistently since 2002 at an average rate of 3.8% per annum (blue line in the chart below). However, the ONS disposable income figure already includes an element of housing costs and so for my most common use of it in assessing housing affordability, we need to add this deduction back in.
This adjusted series (red line) demonstrates the extent to which incomes fell (6.4% peak to trough) during the recession but were counter balanced by the sharp drop in base rates (and hence mortgage interest costs) which helped to cushion households from both falling incomes and high inflation.
