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First-time buyers face house prices over 13 times their average salary

Housing affordability worsens for first-time buyers

Young people in London would need to pay 13 times their annual salary to get onto the property ladder – well above double what most lenders would approve, according to new data from the Office for National Statistics (ONS). 

The figures also revealed that while properties were found to be most affordable in the North East, first-time buyers in the region could still expect to pay almost five-and-a-half times their annual salary for even the cheapest homes.

We take a look at the most and least affordable areas for first-time buyers and how this affects your chances of getting a mortgage.

Housing affordability for first-time buyers

Housing affordability for prospective first-time buyers appears to be worsening, according to recent figures.

The latest ONS report measures the gap between the earnings of people aged 22 to 29-year-olds and the lowest quartile of houses.

Overall, housing became less affordable for first-time buyers in 78% of local authorities in England and Wales last year.

The first-time buyer purchase affordability ratio is calculated by dividing the lower quartile house price by the median gross annual workplace-based earnings for full-time workers aged 22 to 29.

Most affordable areas for first-time buyers

The North East was the most affordable area for first-time buyers and has held the title for 18 of the past 19 years.

Prospective buyers in the region could expect to pay around 5.46 times their salary – up 122% from 2.46 in 1999.

The North West was the second most affordable area and first-time buyers would pay 6.05 times their wages.

The table below shows the five most affordable regions in England and Wales.

Region Affordability ratio
North East 5.46
North West 6.05
Wales 6.54
Yorkshire and The Humber 6.6
West Midlands 7.68

Least affordable areas for first-time buyers

London has been the least affordable region for prospective first-time buyers for 14 of the past 19 years, and 2017 was no exception.

Buyers would need to pay 13.03 times their salary for even the cheapest quartile of homes – up 235% from 3.89 in 1999.

But the South East, East and South West were not far behind, with first-time buyers facing entry-level house prices more than 10 times their income.

The table below shows the least affordable areas for first-time buyers to purchase a property.

Region Affordability ratio
London 13.03
South East 11.86
East 11.26
South West 10.14
East Midlands 8.02

Does this affect mortgage affordability?

Each lender has their own way of calculating mortgage affordability and will take various factors into account.

As a general rule, mortgage providers are allowed to give you a loan of up to four-and-a-half times the total income of you and anyone else that you might be buying with.

So, for example, if both you and your partner earned £30,000 each, your combined income would be £60,000, and the most you’re likely to be able to borrow is £270,000.

Other factors are taken into consideration as well, such as your creditworthiness, debts you currently owe, average spending and your personal circumstances overall.

You can use our calculator to work out how much you’re likely to be able to borrow.

Getting a mortgage as a first-time buyer

In addition to working out whether you’ll be able to repay your loan, you’ll also have need to put down a deposit on your home.

This can be daunting when house prices are high, especially when many mortgages require up to 10% of the property’s value to be put down.

For this reason, many first-time buyers are turning to 95% mortgages, which require a smaller outlay up front even though rates tend to be higher.

As an alternative to traditional mortgages, 100% mortgages offer a way of getting on to the property ladder without having to save up a deposit.

There are currently two types of 100% mortgages on the market: guarantor mortgages and family deposit mortgages.

Both types will require financial support from your family.

Finding the best mortgage deal

It’s important to work out exactly what you can afford before you even start looking for a mortgage.

Using tools like a mortgage repayment calculator can help you calculate what your repayments will be at different rates.

Once you have an accurate figure, it’s time to shop around and see what’s on offer.

Small differences in interest can have a huge impact over the term of your mortgage, so it really does pay to compare costs.

Getting impartial advice from a mortgage broker can also help you make a financial plan and find the best lenders and deals for your circumstances.

Whether you’re a first-time buyer or hoping 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, all 0808 025 7987 or fill in the form below and get a free call back at a later date.

Your home may be repossessed if you do not keep up repayments on your mortgage.

Which? Limited is an Introducer Appointed Representative of Which? Financial Services Limited, which is authorised and regulated by the Financial Conduct Authority (FRN 527029). Which? Mortgage Advisers and Which? Money Compare are trading names of Which? Financial Services Limited.

Categories: Money, Mortgages & property

Please note that the information in this article is for information purposes only and does not constitute advice. Please refer to the particular terms & conditions of a provider before committing to any financial products.

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