Property prices in Britain are arguably out of control.
While more and more Britons are struggling to buy a home across the country, the lack of supply has created a severe housing shortage and therefore boosted prices to record growth rates.
Depressingly, new research by price comparison website Gocompare.com just revealed that first time buyers need a minimum salary of £140,000 to even get on the ladder. Australians, that’s $298,000.
Yes, that’s right — that’s well over quadruple a Londoner’s median average salary of just £30,338.
Recent figures for Sydney buyers, for all the handwringing over “unaffordability”, show that the salary needed to buy a median-priced home in Sydney is $106,000. In May 2015, a full-time average wage in Sydney was $78,600.
Still depressingly out of reach for those earning the average wage, but considering only London and Hong Kong ranked above Sydney in a recent study of the world’s biggest housing bubbles, that’s a remarkable of just how far removed from the real world the London property market is right now.
Given the average price for buying a property in London is now at £522,000 ($1,115,000), that’s 17 years of fulltime average wages to buy a home.
An average house in Hong Kong will cost around 15 years’ of average wages. A Sydney home is currently going for about 12 years of annual wages.
So how did it get so bad in London?
Go Compare looked at the minimum first-time buyers need to earn to get a mortgage based upon a 90% mortgage with a standard 4.5% interest rate over 25 years. Go Compare used Net Salary Calculator and UK Salary Calculator to estimate gross annual salary figures.
If Londoners, who are buying for the first time, wanted to buy a terraced house, the household would have to earn a combined salary of £142,000 a year in order to get on the ladder. Buying a detached property in the capital as a new property owner also seems completely unfeasible if Go Compare’s figures are anything to go by — the household would have to earn a huge £275,000.
Overall, Go Compare’s research said first time buyers need an average minimum household income of £50,000 to get a property in Britain at the country’s average house price of £184,682.
But it isn’t just London that has seemingly unaffordable levels of housing — in 51 out of the 65 cities included in this research, the average salary is below the minimum required to buy a property.
Oxford, Brighton, Edinburgh, and Bristol are the most costly cities to live in Britain after London. However, Blackburn, Hull, Blackpool, Grimsby and Stoke-on-Trent are the cheapest places to buy property because a £15,000 salary is enough to buy a flat.
The data probably doesn’t seem like a surprise to those who watch the British housing market closely.
The average price of buying a property in Britain is £284,000 ($606,000), according to the Office for National Statistics. But at £522,000, London is comfortably the worst.
It’s little wonder why the minimum salary to buy a property in London is so high because with a minimum 10% deposit, then stamp duty, plus being able to withstand the Bank of England’s loan-to-income ratio test, means households need to be super financially liquid.
The BoE stress test makes banks only lend to customers who are able to stand a rise in interest rates and that the mortgage needed was no more than 4.5 times the salary.
This week, the Royal Institution of Chartered Surveyors said in its RICS Residential Survey for Octoberthat UK house prices are expected to rise by 4.5% per annum over the next five years (a cumulative increase of around 25%). The chief economist at RICS said that property will become increasingly “unaffordable” during this time.
So it looks like if you’re a first time buyer looking to get on the property ladder, it may be worth doing it as soon as possible because prices aren’t going to go down any time soon. If you want to see exactly where the most affordable place to buy a property in Britain is, then check out this chart:
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