Blow for first time buyers - Affordability at its worst for 10 years

Affordability across the housing market is at its worst for 10 years according to an analysis by a London agency.

Benham and Reeves analysed the house price to income ratio based on average property values and the average net salary over the last decade.

The research shows that despite the average net salary hitting £25,123 in 2020, an average house price of £249,633 places the price-to-income affordability ratio at 9.94.

This means that house prices are now very nearly 10 times the average salary and a minimum of one year’s salary would be needed for the average deposit.

London remains the least affordable location by this measure with a score of 15.74, with the South East and South West regions both on 12.46. 

The North East still ranks as the most affordable region at 6.34, along with Northern Ireland on 6.48 and Scotland on 6.90.

The all-UK’s current house price to income ratio of 9.94 is the highest seen in the last 10 years, having increased from 8.16 in 2011 and exceeding the more recent high of 9.80 in 2017.

Benham and Reeves says the only silver lining in London and the South East is that while they have the highest affordability ratios in the UK, it has been harder for homebuyers in previous years. 

In London and the South East, the house price to income ratio peaked in 2016 at 16.64 and 12.54 respectively.

With the average first time buyer now paying £209,163 for their first home in the UK and earning an annual net salary of £23,643, their house price to income ratio is 8.85.

Like the regular market, this is far higher than in previous years, up from 7.35 in 2012 and the second highest ratio seen since then, beaten only by the ratio of 8.91 seen in 2017.

As per the regular market, London is home to the highest first time buyer ratio at 14.6, while in the North East it is currently just 5.8.

“Although some regions still remain below previous peaks, this new national high demonstrates the huge financial cost of climbing the property ladder in the UK, a cost that grows largest still for those attempting to take their first step” explains the director of Benham and Reeves, Marc von Grundherr.

“Unfortunately, even with stronger wage growth in recent years, earnings have failed to keep pace with house prices and so it’s very likely we could see this issue of affordability grow larger before it starts to reduce.”