12th August 2021
The most and least affordable regions to buy property in the UK
If you’re house-hunting in 2021, you’ll have noticed that the pandemic has sent prices soaring – and you may worry that they have become more unaffordable than ever.
Since February 2020, just before we began to feel the effects of the COVID-19 pandemic, prices across the UK have increased by an average of 10.4% (Land Registry data). The e.surv Acadata House Price Index (June 2021) reports that this is faster than since 2005.
While salaries have grown too, they have not grown quite so fast, rising by 7.2% in the same period from February 2020 to May 2021, according to the Office for National Statistics data based on PAYE information.
However, averages paint a very broad picture which can sometimes be misleading. The ONS points out that a reduction in low-paid jobs may have pushed up the average so that salaries appear to have risen more than they have. And house price have actually fallen in some parts of the country – although as this is typically in the most expensive areas, it has made little difference to affordability.
How is affordability calculated?
Housing affordability is calculated by dividing average house prices by average annual earnings. This is known as the price-to-income ratio and can provide a more accurate picture of affordability than house prices on their own.
Example: £300,000 ÷ £30,000 = 10.
An average house price of £300,000 divided by an average salary of £30,000 gives a price-to-income ratio of 10. So buyers would need 10 times their gross annual salary to buy the average property. This may sound unachievable – particularly as homeowners only spend an average of 18% of their household income on mortgage payments (English Housing Survey 2019-2020). However, often people may not be in a position to buy a property alone, and will purchase with a partner or spouse.
How affordable are houses in England and Wales?
The latest ONS report into housing affordability (2020) showed a price-to-income ratio of around 7.8 for full-time employees in England, which was similar to 2019. It was higher for new builds; buyers in England would need to spend 9.6 times their gross annual salary to buy a brand new property. More affordable was Wales, where the price-to-income ratio was around 5.9 times their annual earnings.
The ONS reports that homes have become less affordable overall since 1997, with the worst affordability unsurprisingly in London, and the most affordable homes to be found in the North West, Wales, East Midlands and Yorkshire & Humber. However, this information was based on the whole of 2020 and much has happened in 2021 already – so has the pandemic made much difference to affordability?
Regional affordability ratios for 2021 are not yet available so we have calculated our own using the HM Land Registry House Price Index data coupled with ONS earnings data for May 2021 (the latest data).
On the whole, we discovered very little difference in affordability in May 2021 compared with February 2020, the month before we felt the effects of the pandemic. The price-to-income ratio across the UK in May 2021 was around 7.8, a very small increase on February 2021’s figure of 7.6. This is based on average house prices rising by 10.41% from £230,609 in February 2020 to £254,624 in May 2021, and average annual salaries rising by 7.2% from £30,348 to £32,532.
However, as mentioned, affordability varies wildly across – and within – the different regions.
Why Greater London is still the least affordable region
London is one of only two regions where affordability has actually improved since the start of the pandemic, albeit slightly. According to HM Land Registry and the ONS, the average price-to-income ratio has dropped from almost 15 to 13.54 between February 2020 and May 2021.
However, London has the greatest disparity in house prices. Prices remain higher than anywhere else within the UK at an average of £635,278, almost double the England and Wales average of £333,522. It’s a city of ups and downs, with the City of Westminster and City of London seeing prices fall -24.9% and -28.5% respectively over the past year, while the borough of Redbridge saw increases of over 20% (e.surv Acadata HPI).
Affordability varies considerably, too. In 2020 this ranged from a relatively modest 9.75 times the average annual wage in Barking and Dagenham, to a staggering price-to-income ratio of 36.44 in Kensington and Chelsea, producing a regional average of 14.84 for the whole of 2020. (Source: ONS). It should therefore come as no surprise that Kensington & Chelsea has been crowned the country’s number one property hotspot for long-term house price growth, according to Zoopla, with prices rocketing by nearly £740,000 in the past 20 years to an average of £1.1m.
North East England is still the most affordable region
At the other end of the property market is the North East of England, traditionally the home of the lowest-priced properties; it’s the only region currently with an average residential property price of less than £200,000 (e.surv Acadata HPI). This is coupled with slower growth and slower recovery and is reflected in lower wages too; an average of £27,036 gross pay per year in May 2021 compared to the UK average of £32,532.
In the North East in May 2021, home buyers needed 6.85 times their gross annual salary to buy the average property, a slight increase from February 2020’s price-to-income ratio of 6.63 (HM Land Registry/ONS). This makes the region the most affordable in the country, although this should be offset against the country’s highest unemployment rate; in 2020 this was 6.4% compared to the UK average of 4.5%.
As everywhere, affordability varies within the region, with the ONS recording the least affordable area in 2020 as North Tyneside with a price-to-income ratio of 6.22, quite a bit higher than the most affordable area, Sunderland, where buyers need 4.39 times their annual salary to buy a home.
Country’s highest property price increases are in North West England
Affordability in the North West has decreased since the start of the pandemic, which is unsurprising as the region is leading the way for house price increases, with annual growth of 17.3% (e.surv Acadata HPI) and even higher growth in areas such as Greater Manchester, Merseyside, Warrington, and Cheshire East. Trafford, the wealthy metropolitan borough of Greater Manchester, saw the biggest house price rises in the north west, according to Zoopla.
In February 2020, home buyers in the North West needed to spend 7.7 times their gross annual salary on the average property and by May 2021 this had increased to a price-to-income ratio of 8.23 (HM Land Registry/ONS).
In this region, the most affordable and least affordable areas sit side by side. According to Housing affordability in England and Wales: 2020, the least affordable properties in 2020 were to be found in South Lakeland, where buyers needed 9.89 times their gross annual salary to live in an area popular with holidaymakers and second homeowners.
In contrast, only 2.62 times the average salary is required in neighbouring Copeland. This sounds like good news for residents but this figure should be considered against a backdrop of deprivation, with around one in four children in the area living in poverty (Child Poverty: The impact of COVID-19 on families in West Cumbria.
House prices in Yorkshire & Humber 2021
Yorkshire & Humber has seen a similar decrease in affordability to the North West. Buyers needed 8.33 times their annual salary in May 2021, compared to a price-to-income ratio of 7.89 in February 2020 (HM Land Registry/ONS).
In 2020, homes were most affordable in Kingston upon Hull, according to the latest affordability report from the ONS, with a price-to-income ratio of 4.2, while affluent Harrogate was the least affordable, with buyers needing almost 10.2 times their annual salary to buy the average home.
The area has seen house prices rise by 11.58% (HM Land Registry House Price Index) since the start of the pandemic, while wages lagged behind with 5.5% growth (ONS earnings data). York leads the way within the region, according to Zoopla, which reports that prices have risen there by £188,500 in the past 20 years.
House prices in the East Midlands in 2021
The East Midlands has seen a small decrease in affordability since the start of the pandemic, with a price-to-income ratio of 9.06 in May 2021 compared with 8.66 in February 2020 (HM Land Registry/ONS).
In 2020 the ONS reported that the most affordable homes in the region could be found in Derby, which had a price-to-income ratio of 4.17, making it more than twice as affordable as South Northamptonshire, where buyers needed 10.33 times their annual salary to buy the average home and where homeowners have experienced the highest house price growth of the region in the past 20 years, according to Zoopla.
House prices in the West Midlands in 2021
Recording exactly the same decrease in affordability as its neighbour, the East Midlands, in the West Midlands buyers needed almost 9.4 times their annual salary to buy the average home in May 2021 compared to a price-to-income ratio of 9 in February 2020 (HM Land Registry/ONS).
Stoke-on-Trent is the most affordable area within the region, according to ONS data, with a price-to-income ratio of 4.37 in 2020, compared to the Malvern Hills with its considerably higher price-to-income ratio of 11.74.
For house price growth, it is Stratford upon Avon which takes the region’s crown, according to Zoopla, which reports an increase of £206,500 over the past 20 years.
House prices in South East England in 2021
With London, the South East is one of only two areas which has seen affordability improve for buyers – although the improvement is so slight that it is barely discernible. In February 2020, the price-to-income ratio was 11.45, while in May 2021 this had reduced to 11.33 (HM Land Registry/ONS) – so no real change.
Least affordable, according to the ONS in 2020, was the district of Epsom and Ewell, with a staggering price-to-income ratio of almost 17.4, making Gosport almost three times more affordable with a price-to-income ratio of 6.64.
Zoopla reports that Elmbridge in Surrey has shown the biggest house price growth of the region, with average prices rising by £402,200 in 20 years.
House prices in the East of England 2021
The East of England has recorded some of the slowest property price growth year on year, although it remains one of the more expensive places to live with above-average property prices e.surv Acadata HPI.
The region shows a wide disparity in both prices and affordability, with Great Yarmouth offering the most affordable properties in 2020, with a price-to-income ratio of 6.30, while the Hertfordshire district of Three Rivers was significantly less affordable, requiring 16.34 times the average annual salary to buy a home (ONS).
Within the region, St Albans leads the way for house price growth, according to Zoopla, with prices rising by £402,300 over the past 20 years, second only to Kensington and Chelsea.
House prices in South West England in 2021
The biggest change in affordability can be seen in the South West, although this is still a relatively small decrease. The price-to-income ratio in May 2021 was 11.92, compared with before the pandemic when buyers needed 11.2 times their annual salary to buy a home in February 2020 (HM Land Registry/ONS).
Within the region, affordability varies considerably, according to the ONS, with Plymouth providing the most affordable properties with a price-to-income ratio of 6.25. Meanwhile in the district of Cotswold, buyers need far more to secure the average property: 14.3 times their gross annual salary.
Zoopla says East Dorset has seen the fastest house price growth in the region, rising by £273,500 over the past 20 years.
House prices in Wales in 2021
Affordability in Wales has barely changed since the start of the pandemic, increasing only very slightly to a price-to-income ratio of almost 7.9 (HM Land Registry/ONS) in May 2021 from almost 7.8 in February 2020. In addition, ONS says affordability did not change significantly from 2019 to 2020.
ONS reports wide differences within the country, though, with Blaenau Gwent offering the most affordable homes. Within this district, buyers need an average of 3.03 times their annual salary, considerably less than those in the Vale of Glamorgan, where the price-to-income ratio is nearly 8.9.
Monmouthshire, a popular tourist centre since the 18th century, has seen the highest price growth over the past 20 years, with prices rising by £183,500.
House prices in Scotland in 2021
Scotland has seen affordability worsen since before the pandemic and buyers there in May 2021 needed 7.25 times their annual salary to secure an average property, compared with a price-to-income ratio of 6.6 in February 2020 (HM Land Registry/ONS).
Bank of Scotland reported that in 2020 Edinburgh remained the least affordable place to buy a home in Scotland, with a price-to-income ratio of around 8. At the other end of the scale was Paisley in Renfrewshire, where buyers needed 3 times their annual salary to buy the average property and Kilmarnock in East Ayrshire, which had a price-to-income ratio of around 4.
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