There are striking differences in affordability for first time buyers across the UK as rapid house price rise makes it harder to borrow.
The report by Nationwide reveals striking differences in the ability to buy property between the North of England, Scotland and the South East of England.
London has had a significant period of outperformance since 2008 where house price rise was 12.2% in 2015 although this is now 3.7% and below the UK average of 4.4% over the year to December 2016.
Nationwide have used regional data to estimate where in the income distribution a first time buyer would lie buying a property with a 20% deposit and borrowing four times income.
Affordability worst in the South East
Not surprisingly the most affordable properties are in Scotland, the North of England, Wales and Northern Ireland with East Midlands less affordable and the South East and London the least affordable.
The picture had shifted over the last ten years as with the South East and London becoming less affordable and homebuyers have found themselves priced out of the market or having to borrow higher multiples of income.
Other areas are now more affordable such as Scotland, the North of England and Wales with Northern Ireland significantly more affordable today compared to ten years ago.
The pattern is also reflected in the loan to income (LTI) ratios for first time buyers where the mortgage is about four times income for London and the South East and the lowest is less than three times for Northern Ireland.
Robert Gardner chief economist at Nationwide said, there is a strong relationship between affordability in a region and how much first time buyers borrow relative to their incomes.
As affordability becomes more stretched the more first time buyers borrow relative to their income although low interest rates have helped reduce monthly mortgage costs.
With lower interest rates home movers have the opportunity to make overpayments, reducing the loan to the lender and total cost of the mortgage.
House prices slowing in 2016
Annual house price growth for the year to December 2016 was 4.5% according to Nationwide with an average house price of £205,898.
East Anglia had the highest growth in house prices for the first time since 2010 with an average rise of 10.1% year on year.
Increasing house prices for home movers means they need a larger mortgage to buy their next larger home and buy-to-let landlords would need higher rental incomes to cover the interest payments.
Data from the Halifax is slightly different with the average price of a home at £218,002 and house price growth of 6.0%.
In London average house prices are £473,073 and price growth ended the year below the UK average for the first time in 8 years.
Higher property values allows the equity release buyer to access wealth using a lifetime mortgage and maintain their lifestyle, or give a child or grandchild the deposit on their first home.
The lowest price homes remain in the North of England at £124,284 and in cash terms the gap in average prices between the South and North has widened to over £170,000 adding £11,500 over the last year.
For remortgage buyers the higher prices give them an opportunity to release capital which they can use to improve their home.
What are your next steps?
Call our LCM mortgage brokers for advice if you are a first time buyer, want to remortgage your existing home for the best mortgage deal, moving home or are a buy-to-let investor.
Learn more by using the property value tracker chart, mortgage monthly costs calculator and equity release calculator. Start with a free mortgage quote or call us and we can take your details.
For equity release buyers our London City Mortgage advisers can recommend lifetime mortgages allowing you to receive cash from your property for home improvements, holidays or even give to a family member.
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