Affordability up but house price rises are swiftly eroding spending power

10th March 2014

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Home-buyer purchasing power has lifted since the property boom peak in 2008 but the past year has seen this ability fall back as the housing market gains further traction.

In fact home affordability across UK cities has improved in 51 of 62 in the past five years according to the Lloyds Bank Affordable Cities Review.

The average price for a city home in the UK stands at £184,215 – 5.8 times gross annual average earnings, down from 6.1 in 2009 and just under 20% below the peak of 7.2 in 2008.

But the past year has seen a deterioration in affordability in cities, driven by rising house prices across the country.

The average UK city house price has risen by just over 5%, from £175,060 in 2013 to £184,215 in 2014, resulting in overall affordability slightly worsening in the last 12 months from 5.6 to 5.8 times gross average earnings.

Over the last five years, the slight increase in affordability across UK cities as a whole is caused by an average house price decline of £827, and an increase in the gross average annual earnings in those cities of £1,292.

North-south divide in city affordability

A clear north-south divide still remains among UK cities. The top 15 most affordable cities for homebuyers are in Scotland, Northern Ireland or the North of England, and the next five on the list are in the Midlands or Wales. At the other end of the spectrum, the 17 least affordable cities are all in southern England, with Lichfield, Leicester and York completing the top 20.

However, the top 10 UK cities with the highest house price growth in the last decade, eight are in Scotland or the north. Scottish cities top the list, with Aberdeen (94%), Dundee (60%) and Inverness (46%) seeing the biggest changes. In England, Carlisle, Hull and Bradford all saw their house prices rise by 40% or more since 2004.

City affordability is now better than 10 years ago

City house prices are now lower than a decade ago as a multiple of earnings, at 5.8 times gross annual average earnings compared with 5.9 in 2004. In this time, average city house prices have increased by 22%, but average earnings in these cities have increased slightly more, by 23%.

Living in the city is also more affordable than across the UK as a whole, as the UK average house price to earnings ratio stands at 5.9, compared to 5.8 in UK cities. This is driven by higher wages earned in UK cities, as house prices in UK cities are on average 7% (£12,730) higher than their respective county averages.

Stirling is now the most affordable UK city

Stirling has overtaken Londonderry as the UK’s most affordable city, with an average property price (£132,734) that is 3.3 times gross average annual earnings. As a result of lower house prices, cities in Northern Ireland also continue to rank as among the most affordable in the UK, with Londonderry (3.56), Newry (3.90) and Belfast (4.12) following Stirling in the list. The most affordable city in England is Bradford at 4.15.

Oxford continues to be the UK’s least affordable city

Rising property prices in the last 12 months mean that cities in southern England dominate the least affordable rankings. Oxford’s average house prices are now over 11 times (11.25) the gross average earnings in the city. At an average price of £340,864, houses in Oxford are relatively more expensive than the average earnings in the city, partly due to Oxford’s attractiveness to commuters working in London. Last year, Oxford’s affordability was 9.80.

Winchester (9.65), Truro (8.57), Bath (8.05) and Brighton and Hove (7.94) make up the top five least affordable cities. Lichfield (6.13) Leicester (6.07) and York (5.98) are the least affordable cities outside southern England.

Marc Page, Lloyds Bank mortgages director, says: “Over the last five to 10 years, affordability has marginally improved in most UK cities, as increases in earnings have kept up with house price rises in that time.

“However, the economic and lifestyle benefits often associated with residing in cities are continuing to drive demand, especially in the south of England. With city house prices continuing to rise, affordability deteriorated slightly last year, but the trend since 2009 is positive for the majority of UK cities.”

Table 1: 20 most affordable UK cities, 2014
UK cities Region PE ratio
Stirling Scotland 3.30
Londonderry Northern Ireland 3.56
Newry Northern Ireland 3.90
Belfast Northern Ireland 4.12
Bradford Yorkshire and the Humber 4.15
Lancaster North West 4.28
Lisburn Northern Ireland 4.29
Salford North West 4.45
Glasgow Scotland 4.51
Durham North 4.60
Hull Yorkshire and the Humber 4.64
Sheffield Yorkshire and the Humber 4.72
Sunderland North 4.76
Liverpool North West 4.77
Manchester North West 4.78
Hereford West Midlands 4.78
Swansea Wales 4.79
Birmingham West Midlands 4.85
Derby East Midlands 4.85
Stoke On Trent West Midlands 4.85
UK cities average   5.84
Source: Halifax, 12 months to January

 

Table 2: 10 least affordable UK cities, 2014
UK cities Region PE ratio
Oxford South East 11.25
Winchester South East 9.65
Truro South West 8.57
Bath South West 8.05
Brighton And Hove South East 7.94
Chichester South East 7.71
Westminster Greater London 7.60
Salisbury South West 7.40
Cambridge East Anglia 7.32
Southampton South East 7.15
Exeter South West 6.95
Bristol South West 6.82
Canterbury South East 6.75
Norwich East Anglia 6.69
St Albans South East 6.53
Chelmsford South East 6.39
Portsmouth South East 6.20
Lichfield West Midlands 6.13
Leicester East Midlands 6.07
York Yorkshire and the Humber 5.98
UK cities average   5.84
Source: Halifax, 12 months to January

 

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