As house price growth continues to outpace wages, full-time workers in England and Wales can expect to pay almost eight times their annual salary on purchasing a new home, according to new data from the ONS.
The figures show that housing affordability has worsened significantly in 69 local authorities in England and Wales over the past five years, with many people priced out of buying in the area they work.
We take a look at the most, and least, affordable areas to buy a house, and how this could affect first-time buyers trying to get on the property ladder.
Are homes becoming less affordable?
Housing affordability is calculated using the average house price for a certain area and the average annual gross salary of the people working there.
According to the ONS, the average full-time worker is likely to pay almost 7.8 times their gross annual salary on buying a home in 2017. This is up 2.4% since 2016 when homebuyers could expect to pay an average of 7.6 times their salary for a house.
But in some areas – especially within London – house prices are more than 20 or even 40 times local incomes.
- Find out more: Affordable housing: can you buy below market value?
Least affordable areas to buy a house
London and the South East have the highest concentration of the least affordable local authorities to buy a house.
Kensington and Chelsea took top spot as the least affordable area to live. The average house price of £1.3m is a staggering 40.7 times the average annual salary of £31,950.
Westminster followed close behind as the second least affordable area, where the average house price of £1.04m around 24.6 times the average salary of £42,334.
In third place was Hammersmith and Fulham, where the average house price (£768,975) is 20.9 times the average salary of £36.908.
The map below shows the top 10 least affordable ares to live in England and Wales.
Analysis by Which?, using data from the ONS and the Land Registry, revealed how the latest affordability statistics translate for first-time buyers.
While the average first-time buyer house price in Kensington and Chelsea was slightly lower, at just over £1.2m, it still equates to 38.5 times the average salary.
Similarly in Westminster, the average first-time buyer house price was £954,081 costing potential buyers 22.54 times the average salary.
For Hammersmith and Fulham the average first-time buyer house price was £639,572, meaning that first-time buyers could expect to pay 17.33 times the average salary.
- Find out more: Are you ready to be a first-time homebuyer?
Most affordable ares to buy a house
The most affordable areas to buy a house were spread across Wales and the North West of England.
Copeland topped the tables, with the average house price of £128,000, just 2.71 times the average annual salary of £47.221.
Blaenau Gwent in Wales was the second most affordable – its average house price is £82,000, meaning homebuyers spend 3.35 times the average salary of £24,486.
The third most affordable local authority was Barrow-in-Furness where the average house price, £118,500, is 3.69 times the average salary of £32,083.
The map below shows the top 10 most affordable areas to live in England and Wales.
For first-time buyers, Which? analysis revealed that the average first-time buyer house price in Copeland was £104,900, costing 2.22 times the average salary.
In Blaenau Gwent the average first-time buyer house stands at £79.439, which is 3.24 times the average salary.
First-time buyers in Barrow-in-Furness, where the average first-time buyer house price costs £105,652, could expect to pay 3.29 times the average salary.
- Find out more: First-time buyer mortgages
Average house prices in your local authority
Search the table below to find out how the average gross annual salary, average house price and average first-time buyer house price compares in all local authorities across England and Wales for 2017.
- Find out more: How to buy a house
How does this affect how lenders calculate mortgage affordability?
Housing affordability statistics can seem quite daunting, especially for first-time buyers looking to buy in certain areas.
As a rule of thumb, lenders are allowed to loan up to four-and-a-half times the total income of you and anyone you’re buying with, meaning workers in London may need to look further afield for their first home.
But a variety of other factors are taken into account as well, including your creditworthiness, debts you currently owe, average spending and your personal circumstances.
When deciding how much to lend to you, most lenders will look at your household bills, recent wage slips and bank statements before making a decision.
Some lenders use automated systems, while others manually underwrite the loan – meaning they may be open to considering exceptional circumstances.
- Find out more: How much can you borrow?
Mortgages for first-time buyers
Aside from the question of whether you can afford your repayments, you also need to put down a deposit. And when house prices are high, it can be a huge burden to save 10% of the value.
As an alternative, 100% mortgages may be appealing as they allow you to buy a property without having to save up for a deposit.
There are currently two types of 100% mortgages available on the market – guarantor mortgages and family deposit mortgages – and both will require financial support from your family.
With a guarantor mortgage, a parent or close family member guarantees your mortgage debt.
This means that if you miss a repayment, your guarantor will be liable to cover it.
Guarantor mortgages are currently available from the following lenders: Aldermore, Bath Building Society and Tipton and Coseley Building Society.
Family deposit mortgages
Under this scheme, a family member deposits 10% to 20% of a property’s value into a special savings account to act as a security against your mortgage.
The cash is then held for a fixed period after which, assuming that all of your repayments have been made, it will be given back.
This type of mortgage is currently offered by Barclays and Vernon Bank Building Society.
While 100% mortgages may sound tempting, they are quite rare and come with risks. If you fall behind on your payments, both you and your parents are liable to lose money, or in the case of a guarantee, their own house.
In addition, when house prices stagnate, you could fall into negative equity, meaning that you essentially owe your mortgage lender more than your property is worth. This could be problematic if you ever wanted to move house or remortgage.
- Find out more: How can parents help first-time buyers?
Finding the best mortgage deal
Before you start looking for a mortgage, it’s important to work out exactly what you can afford. Using tools like a mortgage repayment calculator can help you calculate what your repayments would be at different rates.
Once you have that figure in mind, be sure to shop around. Small differences in interest can have a huge financial impact over the life of a mortgage, so it always pays to compare costs.
Getting independent advice from a mortgage broker can also help you make a plan and determine which deals are best for you.
Whether you’re a first-time buyer or looking to move homes, Which? Mortgage Advisers is an impartial mortgage broker that can offer guidance on how to get the best mortgage deal.
For a free consultation, call 0808 252 7987 or fill in the form below to get a free call back at a later date.