Rising UK house prices making city properties more expensive

Two popular cities, Oxford and Winchester, have been named as the least affordable in the UK as rising property prices make many locations are still out of reach of ordinary buyer

Affordability has improved since the property price peak in 2008, but last year affordability deteriorated due to rising house prices, according to the latest Lloyds Bank Affordable Cities Review.

Home affordability in UK cities has improved in 51 of 62 cities in the last five years but there is also a distinct north-south divide remains and the average price for a city home in the UK stands at £184,215, some 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.

The past year has seen 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. This has resulted 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.

The top 15 most affordable cities for home buyers 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 at 94%, Dundee at 60% and Inverness at 46%, seeing the biggest changes. In England, Carlisle, Hull and Bradford all saw their house prices rise by 40% or more since 2004.

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 11.25 times 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 9.8.

Winchester is next at 9.65, followed by Truro at 8.57, Bath at 8.05 and Brighton and Hove at 7.94, making up the top five least affordable cities. Lichfield at 6.13, Leicester at 6.07 and York at 5.98 are the least affordable cities outside southern England.

Stirling has overtaken Londonderry as the UK’s most affordable city, with an average property price of £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 at 3.56, Newry at 3.9 and Belfast at 4.12, following Stirling in the list. The most affordable city in England is Bradford at 4.15.

But city affordability is now better than 10 years ago, the report also shows. 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% or £12,730,  higher than their respective county averages.

‘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,’ said Marc Page, Lloyds Bank mortgages director.
‘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,’ he added.