Buying a home: London vs. the East of England

By Ben Gosling of TurnKey Mortgages

According to the latest data from the Land Registry, the average house price in London is now just shy of £400,000. This is the highest in the UK by a significant margin, but sky-high house prices are no longer merely an issue in London.

Due to the steep acceleration of house prices throughout the early and middle years of last decade, the problem of unaffordable housing has spread out of London and the South East to affect the rest of the UK. Even a region like the East of England sees many low and moderate income-earners unable to afford a home of their own.

Starter homes

People are getting their feet on the property ladder later on in life, and the simple fact is that a starter home is no longer what it used to be.

In bygone times, a one-bedroom flat would provide ample room for a single buyer, and possibly even a couple. Nowadays, first time buyers might be looking to start a family, or may have one already. Your typical starter home needs to be spacious, in a good area, with two or perhaps even three bedrooms.

Barring obvious outliers, this is what the average selling price in a given region achieves. In Greater London, depending on the area, £400,000 will get you anything from two- or three-bed flat or maisonette to a three- or four-bed terraced or semi-detached home.

In the East of England, where the average house price is less than half of this, the results are much the same; two- to four-bed houses and flats. In rural areas, the average investment might buy a larger semi- or even fully-detached home, whilst closer to city centres, the average property is more likely to be a flat or bungalow.

Of course, house prices are driven not by necessity or fairness (unfortunately), but by demand. London property is hotly contested, not just by those who wish to live and work there, but by wealthy investors who wish to invest their capital in one of the most quickly appreciating assets in the world. Individuals and families who want to live in the capital will have to live with the notion that home-ownership will probably not be on the cards for some years. In regions such as the East of England, however, things aren’t quite so bleak.

Mortgage affordability

Mortgages for home purchase are underwritten on the basis of affordability. Specifically, the ratio of the total mortgage amount to the income of the applicant(s) must be no higher than 4.0 – that is to say, the mortgage cannot be more than four times larger than the income of the borrower or borrowers.

Looking at the average regional income for London (according to the provisional Annual Survey of Hours and Earnings dataset for 2013, from the office for National Statistics), it’s not hard to see why the capital faces an affordability problem. The average weekly earnings for someone in London are £657.70 per week, or roughly £34,317 per year – whilst the average house price of £396,646 is 11.5 times larger than this!

Put in other terms, this means that even joint applicants with identical average incomes will need to stump up a 31% deposit between them in order to be able to avoid a home. This amounts to a total of over £120,000, and that’s not even including purchase costs such as fees, stamp duty and the like.

On the flipside, the average house price in the East of England is just £177,975 – still a significant amount, but only 4.5 times larger than the average income of £26,350. Even a sole applicant would only need to stump up a £20,000 deposit to be able to afford a home of their own. Between them, two applicants on average incomes would qualify for a mortgage with the lowest possible cash deposit (just 5%).

For many, saving up such an amount is still difficult, and I wouldn’t want to trivialise the hardships suffered by anyone attempting to get on the UK property ladder, wherever that may be. But if you are an aspiring buyer in the East of England, these calculations hopefully show that the dream of owning a place of your own is not quite as distant as it could be.

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