8th February 2022
Sky-high house prices in parts of the UK means getting on the property ladder still feels out of reach for many people today, especially for younger generations.
Couples earning a combined average salary will struggle to save for a deposit in the most expensive postcodes if much of their income is swallowed up by renting. It’s even harder, if not impossible, for many single people and those on low wages.
Finding the right mortgage broker is key when searching for your dream home to help work out how much you can borrow and the best mortgage deal for your circumstances.
Government incentives including the stamp duty holiday and First Homes scheme have helped to fuel sales, but pent-up demand has also caused prices to rocket, with recent reports suggesting prices have risen at the fastest annual pace in 17 years in January 2022.
Further news that first-time buyers can now borrow up to seven times their salary when buying alone, or as part of a couple, was greeted with a mixed reaction.
It’s well above the usual multiplier of four-and-a-half times a borrower’s salary, or even five for lower-risk applicants.
On the one hand, it makes property ownership achievable for more people, including the public sector and other essential workers serving communities in high-cost areas. Yet some experts have warned that it could lead to a ‘borrowing crisis’ if interest rates were to rise, or that it will push up demand, and therefore house prices, even more.
It’s still too early to know whether borrowers and lenders will benefit from higher mortgage income multipliers – but the move has put house price affordability in the spotlight once again.
Our research of 100 towns and cities across the UK found that people earning a typical wage in some of the country’s most desirable locations would need to borrow seven times their salary – or even more – to buy an average-priced property.
The full research can be found here:
Its historic buildings, restaurants, shops, and surrounding countryside mean the historic city of Bath has plenty to offer prospective buyers.
However, our research shows that owning a slice of this elegant city is impossible for anyone on the average wage for the area, £29,940 per person or £59,880 per couple. With typical house prices currently at £528,530, they’d need to borrow seven-and-a-half times their combined salary.
The average house price of all the locations featured in this research is £287,830, well below average prices in Bath.
No lender currently offers mortgages with a multiplier of above seven and even then, it would only apply to one half of the couple, with a multiplier of up to five used for the other person.
Oxford followed in second place, with the average mortgage income multiple required being 7.29 times the average salary in the city.
Not surprisingly, London followed in third place. Wages might be higher in the capital – £42,001 compared to the average in this research of £29,528 – but with homes commanding an average price tag of £704,138, their mortgage would have to be more than seven (7.13) times their salary.
The table below shows the least affordable towns and cities in the UK, based on average house prices, earnings and mortgage size on 25th January 2022.
One reason why securing a first property is so difficult is because wages are out of step with local house prices.
Take Poole in Dorset, for example, which relies heavily on tourism. Residents earn on average £28,753 a year, yet a typical house would set them back £454,658, so they’d need to borrow 6.72 their salary providing they could save £68,198 for a 15% deposit.
Compare this to Reading, which though still in the top 20, has an average house price of £445,438 yet wages are not much lower than London’s at £37,324. This means that residents would need to borrow a smaller 5.07 times their salary to get on the property ladder.
Work, family, and other commitments mean that relocating isn’t always an option. But changing lifestyles due to the pandemic, whether it be a permanent move to remote or hybrid working or the desire for more space, may lead some to look beyond their current locale.
Our research also uncovered parts of the UK where a mortgage doesn’t have to over-stretch your finances.
Below average house prices in Birmingham and Manchester, and relatively higher wages, mean that buyers can still enjoy the buzz of the big city without paying a London premium.
Someone earning £28,107 per year in Birmingham, or a couple on £56,214, would only need to borrow 3.56 times their salary to secure a typical house of £235,681. In Manchester, it’s 3.77 times the average salary for a £235,650 home.
Edinburgh and Glasgow are also relatively affordable, as are major cities such as Liverpool, Newcastle and Leeds.
But some of the best bargains to be found are in the North of England and Scotland, as this table of the most affordable areas shows.
Experts believe we won’t see the frenzied activity of last year. House prices are set to rise at around 3%, rather than the 6.6% reported at the end of September 2021.
Our figures show that many first-time buyers are being squeezed out of the cities where they grew up or work, which can have wider repercussions for local economies.
New mortgage products, such as those offering seven times a person’s salary, could help more people to secure their first home but it’s important to remember the regulations haven’t changed and they’ll still need to meet strict lending requirements.
As always, it comes down to an individual’s circumstances and risk, and lenders and brokers must still put strict affordability checks in place to ensure borrowers can still meet their repayments, even if their finances change.
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