London homes are less affordable than ever before, despite slowing price growth and government attempts to cut the cost of housing for first-time buyers.

It now costs the average Londoner 14.5 times their annual salary to purchase a home, the highest level on record, according to a report Tuesday by researcher Hometrack. Cambridge, Oxford and the English seaside town of Bournemouth also have price-to-earnings ratios in the double digits, the report shows.

“Unaffordability in London has reached a record high, despite a material slowdown in the rate of house-price growth over the last year,” Richard Donnell, research director at Hometrack, said in an interview. “The gap between average earnings and house prices in the capital has never been wider.”

Even with the recent slowdown, the average cost of a first home in the U.K. capital is still up 66 percent since 2012 as supply fails to meet the demand from domestic buyers and overseas investors. Spiraling values have caused the number of younger buyers in the capital to fall, something that Chancellor of the Exchequer Philip Hammond sought to address last week when he abolished stamp duty for first-time buyers of homes worth up to 300,000 pounds ($400,290).

London house prices rose an average 3 percent in the year ending October to 496,000 pounds, less than half the 7.7 percent growth rate of a year earlier, Hometrack said. The researcher defined London as the 46 boroughs in and around the U.K. capital.

The northern English cities of Manchester and Birmingham registered the fastest house-price growth, at more than 7 percent. London will continue to underperform some regional cities over the next two to three years as costs adjust to levels buyers are willing to pay, while the price-to-earnings ratio in the capital is “expected to drift lower,” Hometrack said.

Still, Donnell is skeptical that the tax measures in Hammond’s budget speech last Wednesday will have much effect on affordability, given the large sums needed to get on the housing ladder.

“The changes to stamp duty are unlikely to significantly impact this trend as the greatest challenge for first-time buyers is the income required to pass mortgage-affordability stress tests,” Donnell said.

Source:
courtesy of BLOOMBERG

by Sharon R Smyth

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