What the Bank of England Did to Your Generation

In 1997, a median-earning worker in England spent roughly three and a half times their annual salary buying the median house. By 2024 the same calculation produced 8.3 times. Planning restrictions, supply constraints and demographic pressure account for some of the gap. They do not explain the timing. The ratio sat between 3.5 and 5 times earnings for roughly thirty years before it doubled in about a decade and kept climbing. Something else changed around the turn of the millennium, and that something had a specific institutional address.

A 28-year-old on the median salary in 2024 takes home around £2,200 a month after tax and student loan repayments. A 10% deposit on the median house requires roughly £27,000. At a savings rate of 10% of net income, that takes nearly four years of saving nothing else. On a comparable median single-income basis, the same hurdle took eight months to clear in 1975. The gap is not explained by house prices and wages moving in opposite directions across a single decade. It is the accumulated result of an asset price regime that has been running for fifty years, with three specific inflection points along the way.

Methodology: house price figures are Nationwide UK series. Homeownership rates are English Housing Survey, which means England only. Adjusting to a UK basis moves the headline figure by less than two percentage points and does not change the trajectory. Earnings are ONS ASHE median full-time gross. Deposit-time figures are calibrated to single-earner median for both years to keep the comparison clean.

The result

The chart below shows the house price to earnings ratio at five points across the period the regime has been in operation. Each point is calibrated to roughly when an institutional decision either set or compounded the trajectory. The ratio fell from 1971 to 1997 because the post-war financial system was still partly load-bearing. It has risen since.

1971: Competition and Credit Control

The UK monetary system operated from 1944 under a set of constraints that made unlimited leverage structurally impossible. Banks could not lend beyond individually negotiated caps. The exchange rate was fixed against the dollar, which was convertible to gold at a set rate. Neither constraint was politically comfortable, and both imposed discipline on what credit could be created and at what speed. In September 1971, the Bank of England replaced its system of direct lending ceilings with a market-based alternative under a policy called Competition and Credit Control. Banks could now lend as much as the market would bear, with price as the only restraint. Nine months later, in June 1972, the pound was floated, removing the last external anchor on monetary expansion.

The effect was immediate. M3, the broad money supply, grew by 25% in 1972 alone, against an annual rate of roughly 8% in the years before the policy change, and by 72% in total over the twenty-seven months to December 1973. Mortgage lending surged 123% from mid-1970 to early 1973. Property sector lending increased roughly eightfold over the same period. House prices rose 42% in nominal terms in 1972. The ratio of prices to earnings reached 6 times before the spike burned out by the early 1980s, with the ratio returning to roughly 4 times. The capacity for leverage to expand again whenever conditions allowed remained intact, and the regime that had produced the spike with it.

2003: The inflation measure switch

The Bank of England adopted inflation targeting in October 1992. The measure it initially targeted was RPIX, the Retail Price Index excluding mortgage interest payments, which included owner-occupier housing costs through depreciation, council tax and related expenses linked to the value of the property stock. In December 2003, the Monetary Policy Committee switched its target to the Consumer Price Index, which excludes owner-occupier housing costs entirely. The official rationale was alignment with European statistical practice and comparability across economies. House prices at the time of the switch had already risen from 3.5 times earnings in 1997 to around 5.5 times, and were accelerating.

Under RPIX, the rising cost of housing would have fed into measured inflation. Interest rates would have been under pressure to rise sooner and further. The credit funding the bubble would have been more expensive. Whether rates would have risen enough to prevent the doubling is genuinely contested; housing has its own supply constraints that monetary policy cannot resolve alone. That the switch likely made the problem easier to ignore is difficult to dispute.

Between December 2003 and the peak in 2007, the house price to earnings ratio rose from 5.5 to 7.5 times. The Monetary Policy Committee met throughout that period, hit its 2% CPI target in a majority of months and declared the framework working. It was, for the measure it was watching. The measure it had stopped watching was telling a different story.

2009: Quantitative easing

When the financial crisis hit in 2008, the Bank of England cut interest rates to 0.5% and launched quantitative easing: the creation of new money used to purchase gilts and other assets, driving their prices higher and long-term interest rates lower. The stated mechanism was to encourage spending and investment. The actual mechanism operated through asset prices. Property recovered. Equities recovered. For this to benefit you, you needed to own assets at the moment the programme began.

A 45-year-old who had bought a house in 2002 and held it through the crash watched its value recover from 2009 onwards and surpass its 2007 peak by 2013. A 22-year-old in 2009, who had been unable to save a deposit partly because the preceding regime had kept house prices accelerating faster than wages throughout their adolescence, owned nothing and received nothing from the monetary policy response to the crisis that the same regime had helped create. The cheap money window ran from 2009 to 2022. By the time interest rates rose sharply in response to an inflation surge the Bank had failed to anticipate, the window had closed. The cohort that had been priced out during cheap money was now told money was expensive.

The QE programme eventually reached £895 billion. The gilts were bought when prices were high and yields were low. They are being sold back into a high interest rate environment where prices are lower. The Bank is selling at a loss. Under the indemnity agreement signed when QE began, those losses are absorbed by HM Treasury, meaning they fall on the public finances. The total is currently projected at over £100 billion across the unwind cycle. The 1990 to 2005 cohort will be at peak earning and tax-paying capacity for most of the years those losses land.

Priced out on the way up. Locked out during cheap money. Now picking up the tab for the unwind.

The inheritance won't fix it

The standard rebuttal is that the 1990 to 2005 cohort will inherit. The Resolution Foundation estimates roughly £5.5 trillion of housing wealth will transfer between generations over the next twenty years, a figure cited regularly as evidence that the generational wealth gap will self-correct. The median age at which inheritance arrives in Britain is now 61. Average care home fees run to around £50,000 a year, and roughly 70% of people over 85 need some form of care. The wealth is partly consumed before it transfers. What reaches the next generation is concentrated in the children of owners in London and the South East, which means the cohort most in need of capital, younger renters outside the major asset-holding regions, will receive proportionally the least of it.

A promise of wealth at 61 does not resolve negative capital at 32. It does little to change how you vote, what risks you take, whether you start a business, or whether you have children. The UK fertility rate is now 1.44 births per woman against a stated desired rate of 2.0. The gap between what people say they want and what they actually have is the widest on record, and housing cost is the most commonly cited reason in survey data. Pride in Britain among young people fell from 83% in 1995 to 64% in 2023. These are not attitudes produced by a generation that feels it has a stake.

The inheritance argument also creates a division within the cohort that the aggregate figure obscures. Someone expecting a property in Surrey and someone renting in Sunderland with no parental assets are nominally members of the same generation but inhabit entirely different economic futures. The bifurcation is not closing. It is sharpening, because the asset appreciation that inflated the transfer for the first group continued while the conditions that prevented accumulation for the second group remained in place.

The framework is still in place

The Consumer Price Index remains the Bank of England's primary inflation target. CPIH, a variant published by the ONS since 2013 that includes an owner-occupiers' housing cost equivalent, is currently running roughly half a percentage point above CPI. The Bank is not required to target it. The December 2003 decision has not been revisited, and there is no formal mechanism by which rising rents or house prices feed into the measure the Monetary Policy Committee watches when setting rates.

The fiscal framework has its own version of the same structural problem. Stamp duty receipts run to around £14 billion a year, directly proportional to transaction values. Capital gains tax on property sales produces several billion more. A Treasury that depends on rising house prices to fund public services has a built-in incentive not to correct the price level. The OBR's forecasts assume continued house price appreciation. The institution charged with measuring the fiscal consequences of housing unaffordability benefits, in revenue terms, from the conditions that produce it.

The Institute of Economic Affairs argued in a 2025 discussion paper that NGDP targeting (targeting the growth rate of nominal spending rather than a price index) would be less susceptible to the kind of blind spot the 2003 switch created. Under that framework, asset price inflation feeding through into nominal spending would generate pressure for earlier rate rises regardless of what the composition of the CPI was doing. Whether that would have been sufficient to prevent the doubling of the house price to earnings ratio is contested. The current framework does not directly address it.

The legacy

The house price to earnings ratio stood at 3.5 in 1997 and stands at 8.3 now. Homeownership among 25 to 34-year-olds has fallen from 51% in 1990 to 28%. The Bank of England changed its inflation measure in December 2003 from one that priced in housing costs to one that did not, and the ratio has not stopped climbing since. The QE unwind losses, projected at over £100 billion, will land when that cohort is at peak tax-paying capacity. The bill has not yet fully arrived.

None of this is the fault of any individual generation that came before. It is the cumulative output of a policy regime built across three decisions in 1971, 2003 and 2009, preserved across five Prime Ministers and every government that has held office since. Three institutions made three calls. A generation born 1990 to 2005 inherited the result. The framework that produced it is still operating, with the same target, on the same measure, with the same blind spot.