MSE News

Low to middle income earners will not see their disposable income approach pre-recession levels until 2020 at best, a report from think-tank the Resolution Foundation warned today.

The Squeezed Britain study said households in this bracket, who typically bring in just over �20,000 in take home pay a year, are also facing a 22-year wait to save up enough cash to buy their first home.

The report exposed the "daily struggle" of these families, who account for 5.8 million households and nearly one third of working age homes in Britain.

It suggested incomes for this group will decline before flattening out around 2016-17.

If this is followed by strong growth, it will take until 2020 for low to middle income households to return to the levels of disposable income they had before the recession, but if growth is stagnant, real incomes could be 8% lower than in 2007.

Under both scenarios, the gap between low and middle income earners and those on higher incomes will widen, the report warned.

The study also charted the "disappearing" property ladder for these households, who typically took four years to save for a first-time buyer deposit in 1991.

Years to raise deposit

By 2001 this group took eight years to raise a deposit and by 2011 this wait had more than doubled to 22 years, with those aged under 35 facing being stuck in rented accommodation, perhaps forever.

Researchers put the sharp rise down to house price rises as well as bigger deposits as a percentage of house prices needing to be raised, while wages remain flat.

They based their calculations on a deposit of around 20% currently being needed to purchase a first-time buyer house, typically costing just over �124,500.

Low and middle income earners saving around 5% of their annual wages, amounting to just over �1,000-a-year in savings before interest, would take 22 years to raise a deposit of just under �25,000.

The low to middle income group studied includes, for example, couples without children living on a gross annual household income of between �12,000 and �29,000 and couples with two children on between �17,000 and �41,000.

Most are working households and they are typically employed in the retail, health and social care, manufacturing and construction sectors.

The report also found that the proportion of these households aged in the under 35 bracket and renting privately has more than tripled from the late 1980s to 47%, while in the last six years the proportion of people in this demographic owning their own home has plummeted from 51% to 34%.

Report author Matthew Whittaker said: "This latest annual snapshot of what life is really like for families on low to middle incomes shows rising pressure from pretty much all sides.

"Continued low interest rates and the start of a fall in inflation offer only limited respite. This will be far outweighed by further deep cuts to tax credits due this April which will come as a shock on top of the continued wage squeeze."

Comment/Discuss

Discuss this MSE news story: Low income struggle

Read more news on...

• Debt
• MSE News Homepage

Bookmarks