Housing ladder still hard to reach for prospective homebuyers

As average income last year was below the level needed to buy a starter home in certain areas, a quarter of neighbourhoods in England and Wales were off-limits to prospective homeowners.

Office for National Statistics data indicated that the average cost of an entry-level property in England and Wales had grown by nearly 20% in the last ten years, reaching £140,000. This rose to £180,000 for new properties, with home-ownership prospects differing across the country.

In 2016, the average first-time buyer in England paid over £198,000 to make their way onto the property ladder. This was even steeper for buyers in London, with the average paid reaching £423,000.

Typically, first-time buyers entering the housing market bought homes that were over the cost of the average starter home in their particular area. Indicating that entry-level home buyers could actually afford more than an entry-level home, this was the case across all of England and Wales.

This is not, however, representative of those who are unable to get onto the housing ladder at all. For a first-time buyer in London needing to fund a deposit of 15%, it’s likely that they would require an income of almost £60,000 and £55,000 worth of savings.

For England and Wales in general, the prospective entry-level homebuyer may need an income of £26,444.

Affordability

London was home to some of the least affordable locations. Despite incomes in these areas being higher than average, house prices were also much higher than other areas of England and Wales. For example, the average household income within London neighbourhood Wandsworth reached £89,223, whereas the estimated income required for a starter home was £127,689.

In general, the most affordable neighbourhoods were based in the North of England as well as parts of Wales. Although these areas had many neighbourhoods with low average income, housing was more affordable.

The largest disparities between average income and income required to purchase a property were mainly in London and its surrounding areas, although the level of unaffordability was not confined to the city.

Large parts of England’s south coast had starter homes which were relatively unaffordable for average income households. £35,000 was the average household income for the Foxholes neighbourhood in Poole, whereas the required income to buy a starter home was almost £40,000.

A large number of unaffordable areas were also located in parts of Oxfordshire as well as its neighbouring counties. The average household income in Oxford neighbourhood Littlemore was just over £39,000, whereas the income needed for an entry-level home was just in excess of £45,000.

Moving home costs

As well as the deposit, buying a home usually involves additional costs such as stamp duty and legal fees.

The average starter home price is £140,000 in England and Wales, meaning prospective buyers may need to pay stamp duty of £300, legal and moving fees of £2,000 and a deposit of £21,000 coming to a total of £23,000.

Whilst no stamp duty is incurred on properties under the value of £125,000, the duty can add thousands to a more expensive property.

A 15% deposit and associated costs for an entry-level Pendle property would require savings of £7,625.

Whereas in one Reading neighbourhood, an entry-level property would require stamp duty of £5,375 in addition to a deposit £46,125. When taking other associated fees into consideration, savings of £53,500 would be needed, representative of a year’s income for a household in this area.

 

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