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Can you afford to buy a home in your area?

Buyers pay more than seven times their income as house prices soar

House prices are rising much more quickly than wages, resulting in affordability becoming more stretched than ever before.

That's according to new research by Halifax, which found first-time buyers are getting older and home movers are struggling to progress up the property ladder.

Here, we take a look at what's happened to the housing market and offer advice on what might be next for house prices and mortgage rates.

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House price increases dwarf wage rises 

A new report by Halifax claims house prices have risen by 16.8% since the start of the pandemic in 2020, while average incomes have increased by just 2.7% in the same period.

This has resulted in housing affordability becoming more stretched than ever before, with house prices now averaging 7.1 times local earnings.

Halifax says this is the highest figure on record, breaking the 6.4 figure recorded during the 2007 house price boom.

How where you live affects affordability

House prices vary significantly around the UK, with the average cost of a home in London around three times that in the North East of England.

People working in London and the South East of England have the highest average wages, but this doesn't make up the shortfall required to keep pace with high property prices.

Halifax's data shows that an average homebuyer in London needs to spend nearly 10 times their annual earnings to buy a home, more than double the figure recorded in the North East.

RegionAverage house priceAverage earningsHouse price to earnings ratio
London£534,977£55,2349.7
South East£385,790£41,3779.3
East of England£330,883£38,7398.5
South West£298,162£35,5988.4
East Midlands£234,083£34,2386.8
Wales£211,942£32,4676.5
West Midlands£238,647£36,6276.5

Source: House price data from Halifax House Price Index. Income data based on Annual Survey of Household Earnings by the Office of National Statistics.

Most and least affordable places to buy a home

Four of the top five most affordable areas to buy a home are in Scotland, all recording average house prices lower than four times local earnings. 

Inverclyde (3.1 times earnings) leads the way, followed by Dumfries and Galloway (3.3), West Dumbartonshire (3.4), North Lanarkshire and North East Lincolnshire (both 3.5).

Unsurprisingly, the other end of the table  is dominated by London and the South East of England, where prices are well in excess of 10 times local earnings.

Westminster is least affordable, recording prices a staggering 14.5 times earnings. Close behind are St Albans and Kensington and Chelsea (both 13.7), Elmbridge (13.6) and Mole Valley (13.2).

How affordability issues affect first-time buyers

First-time buyers traditionally face the biggest struggles when it comes to buying a home, with the need to save increasingly large deposits a major barrier to getting on to the property ladder.

Halifax's data, however, shows that prospective buyers have been less affected by rising prices than existing homeowners who want to progress up the property ladder.

It found first-time buyers pay an average of 5.6 times their annual earnings to buy a home, a figure much lower than the 8.5 times earnings recorded for home movers.

Halifax says this is in part by explained by the fact first-time buyers are getting older. The average age of a first-time buyer is now 32, compared to 29 a decade ago.

Halifax says this rise means that when people are finally able to buy a home, they are more likely to be established in work and have potential to be earning more money.

Most and least affordable regions for first-time buyers

The chart below shows the average price to earnings ratio required for first-time buyers to purchase a home around the UK.

Northern Ireland is the most affordable (3.6 times income), while London (8.4) is the most unaffordable.

What's going to happen to house prices and mortgage rates?

As shown in Halifax's research, house prices have soared since the start of the pandemic. 

Official data from the Land Registry shows prices rose by 12% year-on-year in April, but experts predict that the speed of growth will slow in the second half of 2022.

Prices have been kept high by a lack of properties coming on to the market, but the cost of living crisis and higher mortgage rates may result in buyers thinking twice about competing for properties as the year progresses.

The cheapest mortgage rates have tripled since dropping to historic lows last September, with a series of increases in the Bank of England base rate being passed on to borrowers. 

To find out more about what's happening in the mortgage market, check out our stories on the cheapest rates for buyers with big deposits, and 90% and 95% mortgages for first-time buyers. 

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Advice on buying a home 

If you are thinking of buying a home in the second half of 2022, we're here to help. 

Our guides on buying a home offer advice on everything from checking you're mortgage-ready to exchanging contracts.

You can also get the lowdown on the latest property market news, including changes to mortgage rules and the winding down of the Help to Buy scheme, by listening to the Which? Money Podcast