Inverclyde in Scotland is the most affordable place to buy a home in Great Britain, while house prices in Westminster far outstrip workers’ wages in central London, a study has found.
Falling house prices and strong wage growth have combined to make buying a home more affordable over the past year, albeit constrained by rising interest rates, according to the UK’s biggest mortgage lender.
At its peak in June 2022, the cost of a typical UK home was £293,586, while the average annual earnings of a full-time worker were £40,196. According to Halifax, this put the house price to income ratio at 7.3, the highest – or least affordable – level ever recorded.
However, a year on, average house prices have fallen to £286,276 while wages have risen about 7% to £43,090, allowing the house price to income ratio to fall to 6.7, Halifax found.
The lender compiled national and regional figures for the whole UK but broke down affordability by area using local authorities in Great Britain because of sample size for the Northern Ireland data.
Inverclyde, which boasts a saltwater Lido looking out over estuary, has an income ratio score of just 2.9, compared with central London’s score of 16, the research shows. It is closely followed for affordability by Dumfries and Galloway (3.2) and East Ayrshire (3.3).
Hull was named England’s most affordable location, while Blackpool and Burnley were the only other English areas to make the top 10, with the rest in Scotland.
Westminster was named Great Britain’s least affordable place to buy a home with an income ratio score of 16, followed by neighbouring Kensington and Chelsea; the Mole Valley in Surrey and St Albans in Hertfordshire.
But while the narrowing gap between house prices and incomes will be welcomed by prospective homebuyers, the improvement in the overall affordability of housing costs for owners has been more than offset by the impact of rising mortgage rates.
Halifax said typical UK monthly mortgage costs have increased by 22% over the past year, from £1,020 to £1,249. That is based on the typical monthly cost of a five-year fixed rate mortgage, with a 25-year term and a 25% deposit. That equates to mortgage costs as a percentage of income rising from 30% to 35% over the last year.
Compared with the start of 2020, on the same basis, the monthly cost of a typical mortgage has now increased by 65% when it made up 23% of average earnings.
Kim Kinnaird, the mortgages director at Halifax, said: “The sharp rise seen in interest rates over the last year has meant the sums now look very different for homebuyers and those looking to remortgage. Typical monthly mortgage payments are up by around a fifth, which is a big jump at any time, but particularly during a wider cost of living squeeze.
“We should remember the preceding 15 years have been characterised by historically low interest rates. Mortgage costs as a proportion of income are now comparable to those seen in 2007, despite the significant rise in house prices seen over the last decade and a half.”
She said Surrey Heath and Cambridge showed the sharpest improvement in the house affordability of any location in Great Britain over the past year. In Cambridge, long seen as one of the places where house prices were out of kilter with local wages, the index fell from 11.8 to 9.6.
Bucking the trend, Pembrokeshire in Wales showed the biggest deterioration in house price affordability, with the price to income ratio rising from 5.8 to 6.9.
• This article was amended on 23 August 2023. An earlier version of the graphic placed Elmbridge in Greater London, when it is actually a borough council within Surrey, south-east England.
