A stud by Go.Compare, the comparison website, has underscored a significant challenge facing prospective home buyers in the UK. Aspiring homeowners now need to earn almost £20,000 more than the average national salary to afford a home. This financial gap highlights the growing issue of housing affordability and puts the dream of owning a home out of reach for many.
According to the latest analysis by Go.Compare, which utilised data from HM Land Registry and the Office for National Statistics (ONS), an individual needs a pre-tax income of £53,913 to purchase an average UK home. This figure starkly contrasts with the current average UK salary of just under £35,000 a year.
This estimate also factors in the financial burden of monthly mortgage payments. Go.Compare assumes that mortgage payments should not exceed one-third of a person’s income. The typical buyer is considered to be taking out a 90% loan-to-value (LTV) mortgage at a 5.5% interest rate over a 25-year term.
Surging Mortgage Rates and Market Uncertainty
The timing of this analysis is particularly relevant as mortgage rates begin to rise, fueled by market uncertainty regarding when the Bank of England might lower its base rate. Recent reports of higher-than-expected inflation in the US and the UK have sparked fears of further interest rate hikes, although UK economists remain hopeful that this will not occur soon.
Despite a general cooling in house prices due to mortgage market turmoil, affordability remains a critical issue, especially for first-time buyers. The latest ONS house price index shows that a typical starter home costs £234,654, which is nearly seven times the average UK salary.
How Much Do You Need to Earn?
In an effort to provide clarity to potential buyers, Go.Compare has leveraged the most recent data available from January 2024’s HM Land Registry and the ONS’s Annual Survey of Hours and Earnings published in November 2023. Their findings show that while flats require a below-average salary of £30,666 to afford, a detached home demands a substantial £86,633 annually—more than double the average salary.
Moreover, the income required for terraced and semi-detached houses stands at £43,456 and £54,895 respectively. The surge in property prices in 2022 has also pushed up the estimated salary needed by nearly £10,000, with the average UK house price leaping by 22% over the past five years to £271,000.
A Regional Perspective
The disparity in housing affordability is also evident when looking at different regions across the UK. London tops the charts, requiring an eye-watering salary of £134,241 to afford an average property priced at £647,698. In stark contrast, the most affordable place in the UK, Burnley, demands a salary of only £23,244 for an average house price of £116,824.