According to the latest data, this now means that the average home in a UK city costs 8.1 times average earnings (known as the Price to Earnings, or PE, ratio).
Market analysis by Halifax highlights that this increased gap between house prices and earnings has lifted the PE ratio to 8.1, from 7.5 in 2020, meaning buying a city home has become less affordable for those that live and work in them. After sitting at 5.6 from 2011 to 2013, the PE ratio for UK cities has now risen for eight successive years.
Perhaps contrary to some perceptions, overall cities are marginally more affordable than the average for the UK as a whole, which has a PE ratio of 8.5 (UK average house price: £327,691, average earnings: £38,600). This pattern of greater city affordability has been visible in the data since 2014, and in 2021 the gap between PE for cities and all UK homes increased to its widest point, of 0.43. This widening over the last 12 months may reflect home-movers looking for more space to accommodate homeworking during the pandemic.
Most affordable
Of the top 20 most affordable, Hereford is the most southerly location on the list. Londonderry retains its position as the UK’s most affordable city for the third year in a row, with a PE ratio of 4.7. A 13% increase in average earnings last year saw Carlisle join Bradford in second place (both 4.8), ahead of Stirling, Aberdeen, and Glasgow, all with a PE ratio of 5.4.
Of the most affordable cities, all have average house prices below that for all UK cities (£287,440), except for Hereford (£316,929). Despite Hereford being the most expensive location in the top 20, affordability there is boosted by average earnings of £48,048, almost £10,000 above the UK average.
Least affordable
Winchester has become the UK’s least affordable city, replacing previous table-topper Oxford, with homes now 14 times annual earnings for those living and working in the city. A home in Winchester will now set buyers back an average £630,432, up 8% on 2020, while average earnings - though notably higher than for the UK as a whole - are £45,059.
Last year’s least affordable city, Oxford, saw average house prices rise to £486,928, up by 2% from last year, at a PE ratio of 12.4. Tied for third place are Truro and Bath, both with PE ratios of 12.1, after average house prices rose by 18% and 17% respectively over the past year. Chichester, with a PE ratio of 12.0, takes fifth place on the list of least affordable cities.
London is outside the five least affordable cities for the first time in six years, yet affordability did not improve over the last year. Average house prices in Greater London rose by 5% to £564,695, while earnings grew by 4%, pushing the capital’s price to earnings ratio up to 11.0 (10.9 in 2020).
Russell Galley, Managing Director, Halifax, said: “Winchester is now the UK’s least affordable city, while Londonderry has held its place as most affordable, with the lowest city house prices in the UK. We can see from our research that affordability is significantly better in the North and there are now just two cities - Plymouth and Portsmouth - with better than average affordability in the South.
“Rising house prices have generally continued to outstrip wage growth, which reduces overall affordability, however, the picture is mixed for buyers. For city home-movers who want to stay in their area, the level of equity in their current property is likely to be an important factor in how affordable the local area is for them, whereas raising a deposit remains an issue for many first-time buyers. Nevertheless, some areas, like Carlisle, saw affordability improve, and cities like Bradford and Glasgow are some of the more affordable in the country.”
Improving affordability
Seven cities saw housing affordability improve in the last year. Oxford and Carlisle saw the
greatest PE improvement, with falls of 0.79 and 0.73 respectively. Portsmouth, Durham, Salford, Inverness, and Glasgow also had falls in PE ratio, compared to 2020.
Additionally, both Carlisle and Aberdeen are now more affordable than five years ago, with their PE ratios easing from 5.7, to 4.8 and 5.4, respectively.
Inverness is the only city to be more affordable than 10 years ago; the Scottish city’s average home now costs 5.6 times average earnings (6.2 in 2011) thanks to wage growth (28%) outstripping its low house price growth (15%).
House prices and growth
Over the last year, the cost of the average UK city home has risen by 10%, with average house prices in Salisbury growing the most - by 36% - to £392,355**. Hereford saw the second-largest increase (29% to £316,929), and Lancaster and Birmingham (both 19%) were the third largest.
Looking back further, since 2011 Gloucester’s average home has doubled (101%) in price to £287,600, followed by London and Chichester (both 98%) and Manchester (97%). The average UK city house price growth over the same period was 71%.
At £630,432, Winchester now has the highest average house prices of any UK city, ahead of St Albans (£604,423) and London (£564,695). The least expensive average house prices amongst cities are found in Londonderry (£155,917) and Hull (£156,924).
Tom Bill, Head of UK Residential Research at Knight Frank, comments: “Demand has outstripped supply in many parts of the UK property market this year, which has put upwards pressure on prices and made some areas less affordable. However, as the stamp duty holiday winds down and the UK economy fully re-opens, higher supply means price growth should calm down.
"It would be wrong to expect a price crash of the sort we saw after the global financial crisis because of the checks and balances that now exist in the mortgage market, the gentle trajectory for interest rates and the rapidly improving economic backdrop.”
