House price affordability in London has reached a high of 14.5 times earnings and is well above the capitals fifteen-year average.
Data from the Hometrack city house price index shows the house price affordability levels in London have reached a new high of 14.5 times earnings and is 40% over its 15-year average of 10.2.
The average property value in London is £496,000 rising 3.0% over the last year to October 2017 which is lower than the 7.7% the previous year.
Low yields in London have already reduced buy-to-let investor demand and mortgaged first time buyer numbers are down 15% over the last 3 years.
The continued rise in house prices make it less affordable for first time buyers as they would require a larger deposit, higher earnings to purchase their first home.
Regional affordability under pressure
Apart from London, other regions are also under pressure with double figure house price to earnings with Cambridge at 14.3 times, Oxford at 12.6 times and Bournemouth on 10.1 times.
The UK cities house price index from Hometrack shows the top twenty cities house price to earnings (p/e) ratio.
| City | House prices |
p/e ratio |
|---|---|---|
| London | £496,000 | 14.5 |
| Cambridge | £443,300 | 14.3 |
| Oxford | £412,300 | 12.6 |
| Bournemouth | £285,200 | 10.1 |
| Bristol | £278,900 | 9.6 |
| Portsmouth | £232,400 | 8.3 |
| Southampton | £222,500 | 7.9 |
| Edinburgh | £216,900 | 7.1 |
| Cardiff | £198,700 | 7.1 |
| Leicester | £165,700 | 6.4 |
| Belfast | £129,900 | 6.1 |
| Aberdeen | £169,700 | 6.0 |
| Leeds | £164,800 | 5.9 |
| Manchester | £158,800 | 5.9 |
| Birmingham | £155,600 | 5.9 |
| Nottingham | £144,700 | 5.3 |
| Sheffield | £137,300 | 5.2 |
| Newcastle | £125,200 | 4.7 |
| Liverpool | £117,700 | 4.5 |
| Glasgow | £120,200 | 3.9 |
Three cities have house price to earnings ratios below the 15-year average, Glasgow, Liverpool and Newcastle which are the most affordable cities.
Most of the other cities are either at their 15-year average or slightly above.
For home movers relocating from areas with high house price to earnings ratios such as London to lower ones such as Bournemouth or below in the list, it would allow them to buy larger properties or raise capital.
In London the greatest barrier remains the high level of income required to pass mortgage affordability stress tests and many first time buyers must use the Help to Buy scheme to get on the property ladder.
House prices in London would need to fall by 6% to take the ratio to 30% over the 15-year average. For the ratio to reduce to 20% would require a 13% fall in prices.
Potential for further house price growth
If cities such as Leeds, Manchester and Birmingham experienced house price to earnings ratios rise to 30% over the 15-year average, this would equate to a property values increasing 20% to 25%.
According to Hometrack this is very feasible so long as mortgage rates remain low and the economy continues to grow.
The Hometrack city indices have tracked growth with prices 60% higher than 2007 levels in London and Cambridge.
For remortgage buyers these higher city prices would give them an opportunity to release capital which they can use to improve their home.
Price rises has allowed older homeowners living in cities to accumulate considerable value in their properties and the equity release buyer can access this wealth to repay an interest only mortgage or pay university fees for grandchildren.
House prices in regional cities have further upside given the current position of housing affordability compared to London.
What are your next steps?
Call our LCM mortgage brokers if you are a buy-to-let landlord with a property, remortgaging and want the best mortgage deal, buying your first home or you are planning to move home.
For equity release buyers our London City Mortgage advisers can recommend lifetime mortgages allowing you to receive cash from your home to spend on anything including to gift a family member or friend or even buy a more expensive home.
Start with a free mortgage quote or call us and we can take your details. Learn more by using the mortgage cost calculators, property value tracker chart and equity release calculator.
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