The gap between average earnings and house prices has hit record highs in certain parts of the UK, according to latest house price data.
The situation is particularly acute in London and in popular cities, such as Oxford and Cambridge.
The Hometrack UK Cities Index - which looks at house price growth in 20 major cities that account for 45% of the UK’s housing stock - has revealed that house prices in London have risen by 86% since 2009. This gives the capital a house price to earnings ratio of 14.2x, meaning you would need 14.2 times the average London salary of £33,720 to afford the average priced property in London. This ratio is the highest in the country and more than double the UK average of 6.5x.
The index shows that the year-on-year rate of house price growth across London is 9%, its lowest level for three years. Hometrack predicts that it is set to go down to low single-digit growth in the next six to 12 months as demand weakens. This compares with average house price inflation of 8.4% over the 20 cities in the index.
Research by Savills earlier this month found that the Brexit vote will lead to two years of very low house price growth in Great Britain.
Other top priced cities
Three other cities also have double-digit house price to earnings ratios. In Cambridge, where the average salary is £30,633 a year, you would need 13.8 times your salary to afford the average priced property of £420,600. While Oxford has the same average salary, prices are a fraction more affordable at 13.4 times the average salary.
Bournemouth was the third city with double-digit figures for house price to earnings ratios. Despite an average annual salary of just £26,473, buyers would have to earn 10.2 times their incomes to afford the average priced property of £271,400 in this seaside town. A close fourth is Bristol, which has the strongest house price growth of the 20 cities in the index, giving a price to earnings ratio of 9.2x.
For homes to be more affordable, buyers need to head north. Glasgow has the lowest house price to earnings ratio at 3.7x, followed by Liverpool, at 4.4x, and Newcastle, at 4.8x.
“Regional cities have more attractive affordability levels”
Richard Donnell, Insight director at Hometrack, says: “The impetus for house price growth is shifting from the affordability-constrained cities in southern England to cities in the Midlands and the north of England. Regional cities have more attractive affordability levels and house prices have significant potential upside for growth in the near term, subject to the outlook for the economy.
“In cities where affordability levels are stretched, fewer households are able to participate in the market and this reduces levels of turnover and leads to lower levels of house price growth. This process is under way in London, where the annual rate of growth is close to its lowest level for three years and where the top end of the market is already registering falling prices.
“The Autumn Statement focused on the longer-term challenges of addressing housing supply. This will have limited impact on the current profile of housing affordability in the near term, which will be dictated by market forces and households’ expectations for jobs and the cost of borrowing.”