Home affordability in Scottish cities sees a deterioration on last year

27 March 2015

Home affordability for city dwellers in Scotland has deteriorated, according to the Bank of Scotland Affordable Cities Review. The average price for a city home in Scotland (£175,962) stands at 5.24 times gross annual average earnings. While this is a 7% increase on last year, when the average house price in Scotland was £161,463 (4.89 PE ratio) (Table 1), it’s still significantly below the peak of 6.12 in 2008. City living in Scotland (5.24) is more affordable than the UK city average (6.12).

Affordability in Scottish cities is, on average, now at the same level as in 2006 but is 14% lower than the peak of 6.12 times earnings in 2008 at the height of the last housing market boom. The overall improvement in affordability across Scottish cities as a whole over the past seven years has been caused by a combination of an average house price decline of £11,408 (-6%), and an increase in the gross average annual earnings £2,941 (+10%).

Stirling is the most affordable city

Stirling remains the UK’s most affordable city for a second year, despite a deterioration in affordability over the past year. The average property price in the Scottish city of £158,645 is 3.85 times gross average annual earnings. In contrast, Edinburgh is Scotland’s least affordable city, with the average house price sitting at £216,424 which is 6.11 times the gross annual average earnings. (Table 2)

Four of the ten most affordable UK cities are in Northern Ireland due primarily to the relatively low house prices in the country: Londonderry (3.92), Belfast (4.49), Newry (4.51) and Lisburn (4.63). Lancaster (4.03) and Bradford (4.17) are the most affordable cities in England. (Table 3)

House price growth highest in Aberdeen over the past decade…

Aberdeen has recorded the biggest price rise of any UK city over the past decade with a gain of 88% as a result of rising housing demand due to the strong performance of the oil and gas sector over most of the period. Even over a period of five years, Aberdeen has seen a 26% increase in house prices, compared to just 3% in Stirling.(Table 4)

…but strongest in London since 2010

More recently, London has recorded the highest house price growth with a rise of 40% during the past five years followed by Winchester (39%) and Cambridge (37%). Eight of the UK’s ten top performers since 2010 are in southern England with the exceptions being Aberdeen (26%) and Durham (25%). (Table 5)

Nitesh Patel, housing economist at Bank of Scotland, commented:

"Although we have seen an 7% decrease in home affordability in cities in Scotland, the average price for a city home is significantly below the peak of 2008 and is more affordable than the UK city average. As the UK’s oil and gas capital, Aberdeen has recorded the biggest gains over the past decade while Stirling has retained the title of the UK’s most affordable city for the second year in a row."