Exceeding the standard loan-to-income ratio of 4.5 times a couple’s combined salary set by many banks, the current UK market has seen a slight decrease in this ratio due to the impact of rising living costs, but it remains near record levels.
In recent years, the cost of housing has been increasing at a faster rate than people’s annual incomes, resulting in a significant affordability gap. According to data from the Office for National Statistics, while wages in England and Wales have doubled since 1997, house prices have risen at a much higher rate, reaching 4.5 times their original value during the same time period.
In September of 1997, the average cost of a house in England was 3.5 times the median salary for full-time workers. This means that the cost of the house was at the midpoint when all incomes were arranged in ascending order. However, by 2022, this ratio had increased to 8.3 times a person’s median earnings.
The Guardian’s evaluation presumes that a potential purchaser has a down payment of 10%, but this can be a significant obstacle for first-time buyers due to high rents consuming a larger portion of their income, and the rising costs of food and energy due to inflation.
As rents and property values continue to rise, a growing number of individuals are finding themselves in the position of having to rent for extended periods of time. This has resulted in the average age of first-time home buyers increasing over the years, reaching 34 in England during the 2021-22 period. As many individuals have already started families before reaching this age, first-time buyers are commonly searching for properties with two or three bedrooms.
The information reveals the challenges of affording housing in certain regions, particularly in London. A couple with an average income would struggle to afford rent or purchase a home in 72% of London’s postal districts. In an additional 27% of areas, they could afford to rent, but it would still require at least 20% of their combined income.
In specific areas of Bexley, Bromley, and Greenwich, only 1% of districts are affordable for a couple to rent or purchase a mid-range property.
The issue extends beyond London. Many areas in the eastern, southeastern, and southwestern regions of England are considered too expensive for couples living in the area to purchase or rent. In Bristol, almost a quarter of the city is unaffordable, and in larger towns like Oxford, none are within reach.
In comparison, 91% of Scottish areas with postal codes had affordable housing options for average couples to rent or purchase, according to listed prices. The north-east of England closely followed at 90%.
The study considers the middle value of all available properties for rental or purchase from the previous 12 months until September 30, 2023. Although this information offers the most precise and current representation of housing market prices, the median price for a specific area may be influenced by the size of the properties available during this timeframe.
The examination does not include regions with a limited number of available properties for renting or selling. This resulted in the exclusion of certain postal districts, indicated in white on the interactive map, particularly in rural and isolated areas.
Colin Bradshaw, the CEO of TwentyCi, stated that the scarcity of reasonably-priced new homes for first-time homebuyers is worsening the problem. He explained, “For individuals attempting to transition from renting to owning, the ongoing high inflation and subsequent increase in interest rates, resulting in more expensive mortgages, only widens the divide.”
A government representative stated that, since 2010, over 860,000 individuals purchasing a home for the first time have received assistance through schemes supported by the government. Our comprehensive housing plan aims to expand this support and enable even more individuals to achieve homeownership.
Constructing additional affordable housing is crucial, and we have successfully provided 659,000 homes through our affordable homes initiative valued at £11.5 billion since 2010.
“We are working towards creating a more equitable private rental market with the renters (reform) bill, which eliminates section 21 ‘no fault’ evictions. This will provide tenants with increased stability in their homes and the ability to address any issues without concerns of being evicted in retaliation.”
TwentyCi provides the rental and property purchase prices by sourcing, deduplicating, and verifying them. The map file used is obtained from Edinburgh Datashare.
During the period from 1 October 2022 to 30 September 2023, sales refer to the listed prices of properties that are up for sale, have been sold, or are under contract. Rentals refer to the listed prices of rents during the same time frame, which also includes those with a confirmed rental agreement.
Filters have been applied to exclude mobile homes, auction properties, shared-ownership properties, land or site sales, retirement homes and properties used for short-let purposes, wherever possible. Data for Northern Ireland was not available.
The study is focused on the average price of properties in each postal district, but only includes areas with at least 20 properties for sale or rent during the designated time period.
The proportions (e.g. 45% of postal districts) are determined by the total number of districts that fit this requirement: a total of 2,400 postal districts.
The earnings for 2022 are based on the median gross annual pay of the surrounding local authority, sourced from the ONS. If a postcode district is within multiple local authorities, the salary is determined by the authority with the most postcodes in that district. In some instances, pay data for a local authority was not available, so the regional median income was used instead to compare to median property prices.
The study focuses on a family with two employed adults who both make the average yearly salary of the neighboring jurisdiction.
Affordability is described as:
The property is deemed affordable for sales if the mortgage, which is calculated as 90% of the median property price, is no more than 4.5 times the combined salary of a couple. This analysis assumes that potential buyers can provide a deposit worth 10% of the mortgage amount.
Affordable rentals are defined as those that do not exceed 30% of a couple’s median gross monthly income.
We considered standardizing the data analysis by using a fixed number of bedrooms. After consulting with experts, we decided to base the analysis on the median of all properties in an area and compare it with the median household income, which is a common method for evaluating properties. This means that the median value for renting or buying in an area may be influenced by the types of housing available at the time of analysis.
In the analysis, it was found that the BD1 district mainly consisted of one-bedroom properties. This could be due to a higher number of one-bedroom properties being listed during the time period, rather than one-bedroom properties being the most common type in the area.
The “compare your household” tool on this page does not retain any information that you input, according to The Guardian.