Most affordable property in eight years

The number of `affordable' towns is at its highest since 2003, according to Halifax. But does this really point to a recovering property market?

A wiser man than me once said that a budget tells us what we can’t afford but it doesn’t keep us from buying it.

Well, this week a Halifax report has told us that we all now have a better chance of affording a property. But unfortunately – as I’ll explain – that doesn’t mean that we’ll all be able to buy one.

Affordable towns

Halifax’s First Time Buyer Review looks at housing affordability across 250 local authority districts (LADs). The amount a buyer can ‘afford’ is calculated by multiplying the average earnings in the LAD by four ,in line with the average house price to income ratio for a first-time buyer over the last 20 years. If this figure is less than the average price paid by a first-time buyer in the LAD, then the area is deemed ‘unaffordable’.

Halifax has collated these stats and produced percentages for the share of each UK region that is deemed ‘affordable’. Here are the 2011 and 2007 figures...

Region	% affordable in 2011	% affordable in 2007
North East	100%	0%
Wales	93%	0%
North West	92%	4%
Yorks. & Humber	88%	0%
East Mids.	78%	17%
Scotland	77%	38%
West Mids.	37%	0%
East England	20%	0%
South West	8%	0%
South East	3%	0%
London	0%	0%
UK	48%	0%

As HalSource: Halifax

As you can see, as a whole, affordability has improved dramatically across the UK, with the countrywide average upping from 0% in 2007 to 48% in 2011. In fact, Halifax claims that property affordability is now at its highest since 2003.

A distinct North-South divide is also visible within the stats. 80% of all the LADs in the North of the UK are affordable for first-time buyers. In the South, this figure stands at just 8%. The North East and London stand at direct opposite ends of the spectrum with 100% and 0% LAD affordability respectively.

So is this really good news for first-time buyers?

Only part of the picture

Any indication of an increase in property affordability has to be a good thing in this current climate. But by their very nature, these stats only show part of the picture.

As Halifax acknowledges in its report, the number of first-time buyers entering the market is still highly restricted. The bank estimates that there were 86,000 first-time buyers in the first half of 2011 – 10% down on the same figure in 2010.

John Fitzsimons looks at some simple ways to boost the value of your home.

So why is this figure still so low when property affordability is increasing and mortgage rates are dropping?

Deposits

The key problem first-time buyers face at the moment is cobbling together enough cash to stump up a mortgage deposit. This is actually more to do with the general financial climate than anything specific to the mortgage market.

In fact, lenders seem to be adapting their deals to suit cash-strapped first-time buyers. According to Rightmove, there are now 148 first-time buyer only products, compared to just 13 two years ago and 56 in July 2010. This is obviously having an impact as the average deposit put down by first-time buyers in the first half of 2011 dropped by 8% from the same period in 2010 to £27,719.

However with current miserable levels of savings rates as well as rising prices and hiked taxes, the best part of £30,000 is still a lot of money to hoard away for a deposit. Add into this that general mortgage lending remains at a historically low level and it becomes obvious that buying your first home is still no walk in the park.

In fact, if we take a closer look at the Halifax figures, they start to paint an even less positive, and very familiar picture.

Boom and bust

Below is a table showing the average property price of each region in the second quarter of 2003 (the point at which Halifax claims housing was last as affordable as it is now), the third quarter of 2007 (the point at which property prices peaked before the financial crash), and the second quarter of 2011 (now).

I’ve also included the percentage change in prices between the three points and ordered the regions according to the level of change between 2003 and 2011.

Region	2003 Q2 average property price	2007 Q3 average property price	% change 2003 Q2 – 2007 Q3	2011 Q2 average property price	% change 2003 Q3 – 2011 Q2
Wales	£97,907	£166,623	70%	£126,430	-24%
East Midlands	£116,500	£169,528	46%	£129,622	-24%
Yorks. & Humber.	£88,873	£149,716	68%	£118,683	-21%
North West	£90,606	£153,553	69%	£123,091	-20%
North East	£90,399	£152,061	68%	£122,396	-20%
Greater London	£218,986	£322,769	47%	£259,492	-20%
East Anglia	£137,177	£195,604	43%	£162,089	-17%
South East	£192,901	£265,318	38%	£222,450	-16%
Scotland	£77,838	£142,509	83%	£120,951	-15%
West Mids.	£127,088	£179,777	41%	£151,971	-15%
South West	£155,898	£212,995	37%	£184,562	-13%
UK	£129,451	£199,766	54%	£162,109	-19%

Source: Halifax House Price Index

As you can see, Halifax’s ‘most affordable regions’ also happen to be regions where property prices were inflated the most during the housing bubble and hence crashed the hardest when the bubble burst in 2008. Again, a geographical divide is evident with four of the top five regions in the table lying in northern England.

So while the Halifax stats do, in one light, show the most affordable regions, these regions are only affordable because their property prices were ramped up to such a height pre-2008, that when they fell, they fell extra-hard. Indeed, yet another example of how certain parts of our country have been disproportionately hit by the financial crash.

The table above also shows the height house prices are still inflated to following the housing bubble. Will they fall further? Well, that’s anyone’s guess. But if recent events are to be believed, they may well do.

Wages

Distribution of wage rises may also play a role in creating these ‘affordable regions’.

The table below shows the change in average annual gross pay across the different regions between 2003 and 2010.

Region	Average annual gross pay 2003	Average gross pay annual 2010	% Change 2003 – 2010
North East	£17,629	£22,666	29%
Scotland	£19,217	£24,545	28%
East Mids.	£18,925	£23,789	26%
Greater London	£32,209	£40,507	26%
North West	£19,312	£23,886	24%
Yorks. & Humber.	£18,694	£23,138	24%
East Anglia	£20,622	£25,337	23%
South West	£19,141	£23,499	23%
Wales	£18,032	£21,988	22%
West Mids.	£19,225	£23,465	22%
South East	£22,632	£27,499	22%
UK average	£21,327	£26,510	24%

Source: ONS

Again, northern England features heavily at the top of this table suggesting that higher than average wage increases may have helped create these ‘affordable regions’.

Yet the wage figures are still relatively low in these regions, especially when compared with Greater London. In fact, the high nature of the London wage figure exposes a fact overlooked by the Halifax survey. Namely, that London is actually a first-time buyer hotspot.

London anomaly

Figures from Rightmove show that Greater London is the only UK region where prospective first-time buyer rates have returned to a pre-crash level. This research was conducted by questioning people who intended to buy within the next 12 months. Excluding the capital, between 16.8% and 23.4% of respondents were first-time buyers. In London, this figure stood at 41.2%.

Yes, property in London may not be affordable on paper, but there are still plenty of people who can afford it, due to the high average wage level.

But in addition, the median (or middle) figure for London wages is, when compared to other regions, far lower than the average figure. This points to a gaping wage gap in our capital city, whereby a large number of low wages drag the median figure down, while the average is kept aloft by the high (and often exorbitant) salaries of a smaller group. It’s these high salaries that keep London’s first-time buyer market moving, despite the seemingly unaffordable property prices.

What do you think?

Is this research from Halifax really good news?

Have your say in the comment box below.

More: House prices will struggle for a decade | The 10 cheapest places to rent | How Google predicts house prices