Income to buy hits £54,000 despite weaker city house price growth

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The average income required for a first-time buyer (FTB) to purchase a home has grown 9% since 2016 and stands at an average of £54,400, according to Zoopla’s May UK Cities House Price Index.

This is over £4,500 more than the amount needed three years ago. The average deposit currently required for first-time buyers to buy in one of these cities is £38,418.

Zoopla has focused on first-time buyer affordability since this group accounted for the largest number of home purchases in 2018 and became an important driver of growth in housing sales.

The absolute level of household income to buy a home impacts the potential pool of buyers and the demand for housing and. therefore, house price growth.

Affordability increases in London, Oxford and Cambridge

The income required for first-time buyers to purchase in the three most expensive UK cities has fallen by an average of -5% since 2016.

Now, first-time buyers looking to buy their first home in London need an average income of £84,000 – £3,250 less than the amount needed in 2016 which was a high point since the global financial crisis.

This follows three years of weak growth and small price falls in the capital, where prices are now beginning to stabilise.

The university cities of Oxford and Cambridge require the highest incomes of anywhere outside of the capital. However, the income needed to purchase has fallen by -5% and -3% respectively.

Meanwhile, Aberdeen registered the largest percentage decrease in the income required to buy of all the UK cities; this is a result of sharp price decreases in the city following the crash in oil prices since 2015.

Average income to buy ranges from 26k to 84k

The average income required to buy a typical property ranges from £26,137 in Liverpool to £84,000 in London – a spread of over £57,800, which highlights the different challenges facing first-time buyers looking to purchase their first home.

Liverpool registered the highest house price growth of all 20 UK cities analysed, despite being the most affordable market for first-time buyers to enter.

Despite levels increasing since the global financial crisis, the average first-time buyer deposit ranges from £119,000 in London to £18,449 in Liverpool.  For the latest data, Zoopla assume a 15% deposit in regional cities and 25% in London, Oxford and Cambridge.

The larger deposits for high value cities allow for the impact of loan to income limits. This means in the highest value cities, buyers must either buy a cheaper property or find a larger deposit.

The income to buy at a city level has grown fastest in markets where prices have been rising quickly. For instance, Leicester has seen the largest percentage increase in the income required to purchase since 2016 (20%), followed closely by Birmingham and Manchester. Each of these cities have seen house price growth totalling 18% over the last three years.

Weaker city house price growth

Overall, house prices in UK cities increased by 1.8% over the 12 months to May 2019. Price growth ranged from 5.0% in Liverpool to -4.2% in Aberdeen. However, three UK cities – London, Cambridge and Aberdeen – registered average house price decreases, with price falls in the capital at -0.4%.

Richard Donnell, research and insight director at Zoopla, said the weakening city house price growth is a result of market fundamentals.

“Specifically, changing affordability dynamics for home buyers and the impact of successive tax changes since 2015,” he explained. “Together, these have impacted household buying power, and demand for housing, hitting high priced cities more than others.”

“First-time buyers are an important group accounting for more than one in three sales. While the average household income to buy a typical home across UK cities has grown 9% since 2016, weaker price growth and recent price falls have led to a 5% reduction in the income to buy across the most expensive cities.”

Donnell said this will come as a ‘modest relief’ for would-be buyers, although the income to purchase still remains relatively high. What’s more, while it is a factor behind weaker house price growth it supports underlying demand for rental homes.

“Affordability remains attractive in many regional cities where house prices have not registered the gains seen in south eastern England. Liverpool has the lowest income required to buy and has the highest rate of price growth at 5%. We expect prices to continue to increase in cities where housing is in reach of those on average incomes,” he concluded.

The table below shows the first-time buyer income to buy and average deposit 2016 vs 2019:

CityIncome to buy 2016 (000s)Income to buy 2019 (000s)£ change 2016-19% change 2016-19Deposit 2007 (000s)Deposit 2016 (000s)Deposit 2019 (000s)
20 city£49.9£54.4£4.519.0%£18.7£38.0£38.4

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