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House affordability is stretched as prices outstrip earnings

A typical home is 7.1 times average earnings which have risen 2.7% compared to house prices up 16.8% since the start of the pandemic.

Property is less affordable since the start of the pandemic costing 7.1 times average earnings, the highest ever according to research from Halifax and harder for first time buyers.

See how much you can borrow from a lender to get on the property ladder for your first home at this link:
First time buyer calculator with instant mortgage figures to buy your new home.

House prices increased 16.8% over two years and are at £279,431 with average annual earnings of a full-time worker rising 2.7% currently estimated at £39,402.

This compares to the start of 2020 with average earnings of £38,374 and house prices of £239,281 giving the house price to income ratio a more affordable 6.2.

Affordability not stopping demand

Demand remains strong with first time buyer numbers up 35% at 409,370 even though properties are less affordable suggesting buyers are finding ways based on their circumstances.

If you are a joint applicant two salaries significantly improves affordability and home movers can benefit from the rise in the value of their existing home providing more equity.

This table from Halifax shows the house price to income ratio for regions in the UK for the first quarter 2022.
Area House price Earnings Ratio
Area House prices Earnings Ratio
London £534,977 £55,234 9.7
South East £385,790 £41,377 9.3
East of England £330,883 £38,739 8.5
South West £298,162 £35,598 8.4
East Midlands £234,083 £34,238 6.8
Wales £211,942 £32,467 6.5
West Midlands £238,647 £36,627 6.5
North West £214,591 £35,058 6.1
Yorkshire & Humber £194,639 £36,285 5.4
Northern Ireland £177,265 £34,565 5.1
Scotland £194,621 £38,070 5.1
North East £162,692 £35,134 4.6
Not surprising London is the least affordable region with a house price to income ratio of 9.7 and largest average property values of £534,977.

At the start of the pandemic the ratio was 9.0 and back in 2007 it was as low as 6.8 just before the financial crisis and the boom in house prices in the capital which did not occur in other regions.

For older homeowners, affordability is not an issue as you can use equity release when buying a dream home in retirement with a lifetime mortgage.

The most affordable region is the North East of England with average house prices of £162,692 and ratio of 4.6 and is more affordable than back in 2007 when the ratio was 5.8 times.

For remortgage buyers with equity gains in their property you can release capital for home improvements, although interest rates are rising due to higher base rates and would mean higher interest payments.

Less affordability for first time buyers

Across the country the first time buyer house price to income ratio is 5.6 times, much lower than the home movers ratio of 8.5.

First time buyers do not have the benefit of rising house prices during the pandemic like existing homeowners and also have the challenge of raising a larger deposit.

For the deposit many first time buyers can receive help from family and if making a joint application they will have two salaries which improves the affordability.

There are many areas out of reach of first time buyers such as Westminster and City of London even though affordability has improved with ratios falling from 16.8 before the pandemic to 14.5 times.

St Albans in the East of England and Kensington and Chelsea have a house price to income ratio of 13.7, Guilford in the South East is 12.9 and Hammersmith and Fulham is 12.6.

First time buyer ages are three years higher than a decade ago at 32 years which means they are more established in employment with higher earnings.

The Bank of England is relaxing affordability rules from 1 August 2022 removing the test to add 3% to the lender's variable rate to make buying a home easier for first time buyers.

What are your next steps?

Talk to our London City Mortgage brokers for advice if you are buying your first home and want the best mortgage deal. Learn more by using the property value tracker chart and equity release calculator.

Start your free mortgage quote and we can find the best mortgages and lowest rates for your first home at this link:
Free mortgage quote with the lowest mortgage rates for your property.

If you are releasing equity from your property to improve your quality of life and have a drawdown reserve, we can recommend lifetime mortgages so begin your equity release quote for the latest provider offers.

Mortgage Best Buys

These are examples of mortgage products we can approach with many more offering interest rates and flexibility to meet your needs.

1.16% Fixed Rate
60% Loan to Value
£1,525 App Fee
Until 01/11/2022
Reverts to 4.09%
1.18% Fixed Rate
60% Loan to Value
£1,034 App Fee
Until 31/10/2022
Reverts to 3.59%
1.17% Fixed Rate
60% Loan to Value
£1,025 App Fee
Until 31/09/2022
Reverts to 3.59%
1.19% Fixed Rate
60% Loan to Value
£999 App Fee
2-Years Time
Reverts to 3.59%

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