The rapid rise of house prices in cities has outstripped earnings and means affordability levels have reached a ten year low.
According to Lloyds Bank’s Affordable Cities Review the ratio between house prices and average annual earnings was 5.6 in 2012 and this has increased to 7.0 in 2017, the worst level for ten years.
The five least affordable cities for homebuyers are Cambridge, Greater London, Brighton, Hove, Bath and Oxford which leads with an average house price of £429,775 and 11.5 times annual average earnings.
Since 2012 the average house price in UK cities has increased by 36% from £171,745 to an all time high of £232,945 in 2017.
The strong growth in house prices and difficult affordability means first time buyers would require larger deposits or higher earnings or mortgage to purchase their first home.
Large North-South divide in affordability
The top ten least affordable cities are all located in the South of England with house price to annual average earnings from 8.9 in Canterbury to 11.5 in Oxford both in the South East.
This compares to the top ten most affordable cities with Swansea in Wales with a ratio of 5.4 and Sterling in Scotland on only 4.0.
The following table from the Lloyds Bank shows the price to earnings ratio of the least affordable cities in the UK for 2017.
| UK cities | Region Price | Price earnings ratio |
|---|---|---|
| Oxford | South East | 11.5 |
| Cambridge | East Anglia | 10.5 |
| London | Greater London | 10.2 |
| Brighton & Hove | South West | 10.2 |
| Bath | South West | 10.1 |
| Winchester | South East | 10.0 |
| Truro | South West | 9.3 |
| Exeter | South West | 9.3 |
| Southampton | South East | 8.9 |
| Canterbury | South East | 8.9 |
Andy Mason Lloyds Bank mortgage products director said, there is also a clear North-South divide with only one Northern location appearing in the top 20 least affordable.
With competition from buy-to-let investors and reduced supply of affordable properties, prospective home buyers must continue renting and saving for a bigger deposit.
Living in a city suits people looking for shorter commutes with much of what they need on their doorstep, but buying property is now the least affordable for a decade.
For home movers moving away from the South to the North of England often means their wealth goes further allowing them to buy a larger home or reduce their mortgage.
House price growth strong in the South
House price growth over the last ten years has been higher in Southern England than the rest of the country with nine out of the top ten cities with the exception being Cardiff in Wales.
The highest growth in property value over the decade was for Cambridge with a gain of 47% from £288,403 in 2007 to £422,589 in 2017, compared to the average rise of 12%.
St Albans has the second best growth rate increasing 44% followed by Brighton & Hove with 39%, Greater London up 31%, Cardiff and Canterbury both rising 29%.
Over five year seven out of the top ten are in Southern England with the highest rise was Greater London with average house price up 61% from £298,940 in 2012 to £480,800 in 2017.
The lack of affordable homes could mean remortgage buyers stay in their current property and increasing their mortgage to releasing capital which they can use to improve their home.
Coventry has the second highest increase in average house price of 55%, closely followed by Cambridge, Ely and Lisburn all rising 54%.
The rise in house prices is good news for older homeowners as value in their property allows the equity release mortgage buyer to access wealth for home and garden improvements, holidays of a lifetime or gift to a family member.
What are your next steps?
Speak to our LCM mortgage advisers if you are planning to move home, buying your first home, remortgaging your existing home to a new cost effective mortgage deal or are a buy-to-let investor.
For equity release buyers our London City Mortgage brokers can recommend lifetime mortgages allowing you to receive cash from your property to improve your quality of life or even pay for care at home.
Learn more by using the mortgage cost calculators, equity release calculator and property value tracker chart. Start with a free mortgage quote or call us and we can take your details.
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