Lloyds Bank Affordable Cities Review

27 March 2015

Home affordability in UK cities deteriorates to 2009 levels

•    Affordability 15% better than in 2008

•    Oxford is the UK’s least affordable city; Stirling is the most affordable

•    Aberdeen records highest house price growth since 2005; London since 2010

The past year has seen a deterioration in affordability in UK cities, driven by rising house prices across the country, according to the Lloyds Bank Affordable Cities Review. The average UK city house price has risen by 7%, from £181,667 in 2014 to £195,107 in 2015. This has resulted in affordability in the nation’s cities worsening in the last 12 months from 5.8 to 6.1 times gross average annual earnings; the second successive annual decline in affordability.

Affordability in UK cities is, on average, now at the same level as in 2009 but is 15% lower than the peak of 7.2 times earnings in 2008 at the height of the last housing market boom. The overall improvement in affordability across UK cities as a whole over the past seven years has been caused by a combination of an average house price decline of £12,630 (-6%), and an increase in the gross average annual earnings in UK cities of £3,058 (+11%).

Oxford is the UK's least affordable city [Table 1]
Oxford’s average house price is 11 times (10.89) the gross average earnings in the city. At an average price of £361,469, houses in Oxford are more expensive compared with local average earnings than any other UK city. This is partly due to Oxford’s attractiveness to commuters working in London.

Winchester (10.11), Cambridge (9.76), Chichester (9.19) and Brighton and Hove (9.10) make up the top five least affordable cities. Greater London is not far behind with average property prices 8.75 times average gross annual earnings. This average figure disguises considerable variations across the capital with central boroughs being significantly less affordable than the Greater London average.

Lichfield (6.95), York (6.83) and Leicester (6.54) are the least affordable cities outside southern England.

Stirling is the most affordable city [Table 2]
Stirling remains the UK’s most affordable city despite a deterioration in affordability over the past year. The average property price in the Scottish city of £158,645 is 3.9 times gross average annual earnings.

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.

Andy Hulme, Lloyds Bank mortgages director, commented:
“House price rises in the past two years have resulted in a deterioration in home affordability in the majority of UK cities, and generally widening the north / south affordability divide as the market has been strongest in the south. The UK’s most successful cities economically have tended to see the strongest property price rises. Aberdeen, the country’s oil and gas capital, has recorded the biggest gains over the past decade whilst London has been the top performer during the economic recovery.”

Significant north-south divide in city affordability
A clear north-south affordability divide remains among UK cities. Seventeen of the 20 least affordable cities are in southern England1 with Lichfield, Leicester and York completing the top 20.

At the other end of the spectrum, nineteen of the 20 most affordable cities for homebuyers are outside southern England with the exception being Ely in East Anglia.

House price growth highest in Aberdeen over the past decade…[Table 3]
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. Cambridge (55%) and Brighton & Hove (52%) saw the largest increases in England.

…but strongest in London since 2010 [Table 4]
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 ten top performers since 2010 are in southern England with the exception being Aberdeen (26%) and Durham (25%).

Full list of cities