London house prices exceed first time buyer annual earnings by 13 times and is more than twice the multiple of the North East.
London is the least affordable region in the UK according to a report from the Office of National Statistics (ONS) with first time buyers paying 13 times their earnings to buy a property.
In contrast house prices in the North East on England are 5.5 earnings of first time buyers and the most affordable for 18 of the last 19 years.
The study by ONS finds an “affordability ratio” by taking the lower quartile price paid for residential properties divided by the median gross annual earnings for full-time workers aged 22 to 29 years.
For first time buyers purchasing a home has become less affordable in 78% of local authorities in 2017 when compared to the previous year.
London less affordable than five years ago
The capital has become less affordable even in the last five years where the multiple of earnings has increased from 8.0 to 13.0 times.
With competition from buy-to-let investors and reduced supply of suitable properties, prospective home buyers must continue renting and saving for a bigger deposit.
Mortgage lenders will typically limit borrowings to 5 times earnings making it very difficult for young first time buyers as they need substantial deposits.
The following table from ONS compares the North East and London and shows the multiple first time buyers pay over earnings to get on the property ladder.
| Year | North East | London |
|---|---|---|
| 2008 | 4.8 | 7.9 |
| 2009 | 4.3 | 7.1 |
| 2010 | 4.4 | 7.4 |
| 2011 | 4.3 | 8.0 |
| 2012 | 3.9 | 8.0 |
| 2013 | 5.5 | 9.7 |
| 2014 | 5.7 | 10.4 |
| 2015 | 5.7 | 11.3 |
| 2016 | 5.5 | 12.6 |
| 2017 | 5.4 | 13.0 |
The North East is the most affordable region in the country with multiples of 5.4 times followed by the North West with 6.0 and Wales at 6.5 times earnings.
Yorkshire and Humber were also more affordable with house prices 6.6 times earnings and a better place for those aged 22 to 29 years to buy their first home.
For remortgage buyers over the past five years the rise in prices has created significant equity and gives them an opportunity to release capital which they can use to improve their home.
Regional affordability gap increasing
The affordability gap between the North and South is increasing with London in 1999 on multiples of 3.8 one-and-a-half times more than the North East with 2.4.
This could be an advantage for home movers if they leave areas with high multiples to areas with low multiples as they may have extra equity for a deposit to buy a larger home or can reduce their mortgage.
The accelerating house prices in the capital over eighteen years has seen the multiple extend with London on 13.0 almost two-and-a-half times the 5.4 figure for the North East.
This means since 1999 in London prospective first-time buyer affordability ratio in London has increased by 235% whereas in the North East, the ratio has increased by 122%.
The South East is also unaffordable for the majority of young people with property 11.8 times earnings followed by the East with 11.2 and the South West on 10.1 times.
Older homeowners could help as the considerable value in their property allows the equity release mortgage buyer to access wealth which they could give to a child or grandchild for a deposit on their first home.
What are your next steps?
Talk to our London City Mortgage brokers for advice if you remortgage your existing home and want the best mortgage deal or release capital, buying your first home, moving home or are a buy-to-let investor.
For older homeowners releasing equity from your property, our LCM mortgage advisers can recommend the lifetime mortgage, accessing wealth to improve your quality of life or help your children start or expand a business.
Start with a free mortgage quote or call us and we can take your details. Learn more by using the equity release calculator, mortgage monthly cost calculators, and property value tracker chart.
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