As the government launches First Homes – its latest scheme designed to help first-time buyers in England onto the property ladder – new research has revealed the most and least affordable locations following a turbulent 12 months for the UK property market.
Compiled by online mortgage broker Mojo Mortgages, the First Homes scheme affordability index looked at various factors affecting home affordability in June 2021 including house prices, mortgage repayments, average annual salary and monthly take home pay to work out where in England was most and least affordable.
The figures have been released following the launch of the government’s First Homes scheme this month; designed to help first-time buyers and key workers onto the property ladder in their local areas that might otherwise have had to move to another city to afford their first home.
First Home properties will be priced at a discount of at least 30% of the original market value to allow more affordable deposits and mortgages with prices being capped at a maximum of £250,000 (£420,000 in Greater London). However, it’s important to note that this discount will apply to the lifetime of the property, meaning that same percentage discount will apply when the home is resold in the future.
Based on the average monthly mortgage payment as a percentage of income*, Oxford was the least affordable location in England for first-time buyers with the average monthly mortgage repayment taking up 49.37% of a couple’s take home pay. This is based on an average property price in the city of £540,005 and an average annual salary of £31,232.
Bath (47.65%) and London (47.12%) followed close behind highlighting the difficulty of getting onto the property ladder in these areas. However, it’s clear there was some variance across the capital’s 32 London boroughs.
The ten least affordable areas in England based on mortgage as a percentage of income were as follows:
- Oxford (49.37%)
- Bath (47.65%)
- London (47.12%)
- Reading (38.98%)
- Poole (38.72%)
- Cambridge (38.49%)
- Brighton (37.19%)
- Slough (36.68%)
- Cheltenham (36.38%)
- Exeter (35.03%)
In contrast, it was Bradford that was most affordable for first-time buyers.
With an average property price of £145,981 and an average annual salary of £28,790, this equated to 14.30% in terms of monthly mortgage payments as a percentage of income – the lowest in England.
Blackpool (15.94%) and Stoke-on-Trent (17.35%) followed closest behind with the top ten most affordable areas for first-time buyers as follows:
- Bradford (14.30%)
- Blackpool (15.94%)
- Stoke-on-Trent (17.35%)
- Sunderland (17.56%)
- Middlesbrough (17.70%)
- Hull (17.72%)
- Carlisle (17.82%)
- Durham (18.10%)
- Liverpool (18.56%)
- Bolton (19.19%)
Regardless of location, the First Homes scheme could make a significant difference to a first-time buyer’s monthly outgoings once on the property ladder in terms of mortgage payments as well saving for that all important deposit.
For example, for those in London that purchase a property under the scheme, they can expect to pay on average around £766 less a month on their mortgage repayments, taking their percentage spend of income from 42.17% to 32.97% – a significant saving.
However, before considering your mortgage options, it is important to establish how potential repayments fit into your monthly budget as Nisha Vaidya, mortgage expert at money.co.uk, explains:
“A home is one of the largest purchases you’ll make and it can be difficult to understand how much you can afford. There are many factors, like your salary, regular outgoings, and debt-to-income ratio that will impact whether a home is within your reach.
“A good rule of thumb is to allocate no more than 35% of your gross income to your monthly mortgage repayments. Any more than this and you could become ‘house poor’, where you own a house, but lack the funds to do other important things such as saving money or going on holiday.”
Cassie Stephenson, director of mortgages at Mojo Mortgages, adds: “While of course it’s important to remember the 30%+ discount will apply throughout the lifetime of the property and will apply when you eventually sell for the first time, a First Homes scheme property is still very much worth considering, regardless of location as an option for first-time buyers looking to get onto the property ladder.
“The savings available – particularly allowing first-time buyers access to higher LTV mortgages through reduced deposits – could also mean better access to lower interest rates and improved overall savings across the lifetime of a mortgage. Plus of course, purchasing a home is a significant long term investment towards your financial future as opposed to lining a landlord’s pocket.
“We’re excited to see how this new scheme develops over the coming months as new properties and developments continue to crop up across England.”
For the full figures outlined in the First Homes scheme affordability index, visit https://mojomortgages.com/first-homes-scheme
*Based on a 10% deposit with a mortgage term of 30 years at 3% interest.