Two in five working households can’t afford a typically priced two- or three-bedroom home using a 20% deposit, data has revealed.
Some locations, along with certain types of borrower, are at a distinct disadvantage when it comes to affording to buy a home in Britain, according to the report by Zoopla.
It is perhaps no surprise that areas in the South, where house prices tend to be higher, prove to be less affordable for buyers.
In particular, 74% of workers in London cannot afford to buy a property.
Meanwhile, more than half – 58% – are unable to buy an average two- or three-bedroom property in the South, covering the South East, the South West and the East of England.
Across the rest of Britain, access to homeownership is better, but the study found that 20-30% of workers on the lowest incomes are still unable to buy.
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Zoopla said there are “major implications” for the employment market and wider economy due to the large number of individuals who couldn’t afford to buy.
Improving affordability
The main obvious ways of improving affordability are to use a larger deposit or buy a smaller, lower-priced home.
However, the report finds these deliver modest benefits improving access to homeownership.
House prices rising more slowly than incomes growth is another option, but it takes years to shift buying power and improve access to housing.
Regional crisis
The study also finds that being able to afford to buy a home is becoming more challenging across a growing number of regional cities outside Southern England.
It suggested this is because the growth in jobs and incomes has pushed both house prices and rents higher.
In York, 61% of workers are unable to buy a two- or three-bedroom home.
It is followed by 57% in Trafford, Greater Manchester, 46% in Leicester and 45% in Edinburgh.
In total, there are 18 local authorities outside of Southern England where more than 40% of workers are unable to buy.
Single-earner households
Single-earner households are at a major financial disadvantage, according to the research.
A total of 57% of single-earner households are unable to buy an averagely priced two- or three-bedroom property.
For this type of borrower, the unaffordability of homeownership is worse across all regions of Britain compared to an average multi-earner working household.
Bank of England data for new mortgage lending shows the proportion of single earners buying homes with a mortgage has fallen from 45% in 2007 to 32% today, highlighting the squeeze on single-earner households.
Knock-on effect on rents
The unaffordability of homeownership is compounding the pressure on the private rented sector (PRS), where the total number of rented homes has been broadly static since 2016.
The growth in average rents has outpaced house prices since the start of the pandemic.
House price growth has been below the UK average across London and Southern England as affordability constraints reduce demand and restrict house price increases.
By contrast, house prices have grown faster in markets where more workers are priced into the market to buy.
The study found that, at a national level, just 27% of full-time workers are unable to afford private rental costs compared to a higher level of 40% for buying.
Renting is most unaffordable in London, where 67% of workers living in London can’t afford the rent for two- or three-bedroom homes.
Meanwhile, just under a third – 32% – of workers are unable to afford rent across Southern England.
Can affordability be improved?
Working households may be able to consider several ways to improve affordability, according to Zoopla.
The first is to buy or rent a smaller-sized home, subject to how much space is required, or to use a larger deposit.
Spending more income on renting is the main option for renters.
However, buying smaller homes has limited benefits compounded by a scarcity of smaller-sized homes to buy.
There is growing pressure on buyers to put down larger deposits to reduce the size of the loan required.
The average first-time buyer deposit was 33% in London in 2023, compared to a UK average of 20%, according to the Office for National Statistics (ONS).
However, using a 33% deposit to buy a two- or three-bedroom home priced at the lower end of the market improves access and would get an additional 7% of working households priced into buying a home.
Pressure on the rental sector
Richard Donnell, executive director at Zoopla, said: “The unaffordability of homeownership is a real risk to labour mobility and growing housing supply, particularly in Southern England, where more than half of full-time workers are unable to buy an average-priced home.
“The more people who are priced out of buying, the greater the pressure on the rental sector where rents have risen faster than house prices since the pandemic.
“Our analysis has important implications for the type and tenure of homes that need to be built over the next five years.”
He continued: “The narrative on home building needs to move beyond headline numbers and focus on the types and tenures of new homes that are needed to support economic growth and improve access to homeownership.
“There is no simple one-size-fits-all approach, the types of homes that are needed vary across the country.
“Increasing the number of social and private rented homes that are built is a key pillar in easing pressures across the housing market.”
Nathan Emerson, chief executive of Propertymark, added: “Regional house price differences remain a significant concern for people looking to purchase a property.
“For many people, owning a home is becoming a very challenging prospect to achieve.
“All eyes will likely be on the forthcoming budget to see what proposals may affect those looking to purchase, but also to see… what support might be offered to first-time buyers.
“Ultimately, the UK government needs to establish a clear timeline as to how they will meet their ambitious goal of constructing nearly two million homes by the end of this Parliament and what measures will be announced as part of their upcoming Budget to help them achieve this aim.”
