City living costs reach worst level since 2008

Urban house prices outpace earnings growth to make Oxford the UK’s least affordable city to live in

Oxford: home to the UK’s least affordable urban property

If the hustle and bustle of the UK’s diverse and lively cities are your idea of property heaven, the chances of getting on the housing ladder just got even further away, new data has revealed, with the average city house price now coming in at around £225,000.

That’s a rise of almost a third from £170,000 in 2012, despite average city annual earnings over the same period coming in at only 7 per cent higher – around £32,800, according to Lloyds Bank’s Affordable Cities Review.

It means home affordability across UK cities is now at its worst level since the financial crisis of 2008. In fact, prices in Greater London are up by 57 per cent in the last five years alone, but it’s among the spires of Oxford where your money stretches the least.

The average house price in the famous university hub is now more than £385,000 – nearly 11 times the £36,000 annual gross average earnings in the city. It’s a similar story in Greater London, Winchester, Cambridge and Chichester, where property will typically set you back more than 10 times the average salary for those areas.

But it’s St Albans that has recorded the highest price rise of any UK city over the last decade, recording an average increase of 65 per cent.

At the other end of the scale, it’s no great surprise that the 20 most affordable cities are all outside southern England with Stirling, the former Scottish capital, offering buyers homes at an average of £174,000 – less than four times average gross earnings for the region. Londonderry in Northern Ireland is the UK’s second most affordable city. Others include Belfast, Bradford, Sunderland, Durham, Glasgow and Swansea.

However, the latest monthly property price data from Nationwide shows the rate of increase is continuing to level out, with the price of property in the UK rising by 4.5 per cent over the last year and 0.6 per cent over the last month.

“It’s fast becoming less a battle of wills than a battle of nerves – the uneasy standoff between cautious buyers and sellers who know they have less competition than usual,” suggests Jonathan Hopper, managing director of Garrington Property Finders.

“The acute lack of supply is steadily nudging up average prices, but pragmatic vendors have long since grasped that this is anything but a seller’s market.

“Instead buyers frequently hold the whip hand, bolstered by resilient levels of confidence and sound economic fundamentals; GDP is still growing well, there are record levels of employment and interest rates are barely above their historic lows.

“The result is that despite the continued rise in average asking prices, astute buyers are increasingly able to ask for, and secure, sizeable discounts. Buyer confidence is not unlimited though, and on the front line we’re seeing that buyers, though committed, are highly price-sensitive.

“February’s surge in consumer inflation – which raises the twin prospects of an interest rate rise and the cost of living rising faster than people’s wages – means caution will remain a dominant force in 2017," he adds.

There are also tax changes in the pipeline that could have an impact on investor sentiment and the market, suggests Alex Gosling, CEO of online estate agents HouseSimple.com.

“The first cut to mortgage tax relief is also just a couple of months away, and no-one really knows what impact that is going to have.

“The response to the second homes tax that came in last April was dramatic before and after the event, but we didn't see investors completely desert the market as many people predicted.

“Investors quickly adapted to the changes and the same may well happen when the phasing out of mortgage tax relief on buy-to-lets begins. We could well see more investors buying for cash to negate the impact of cuts to tax relief, particularly people in retirement.

“Because of pension freedoms, they have cash to invest in a buy-to-let property as part of a diverse investment portfolio, and many probably won’t be looking to take money out of the property to buy another."