First-time buyers in London need to be earning a minimum of £77,000 a year to be able to afford a home, a report by KMPG shows.
This calculation is based on a mortgage of 4.5 times salary (with a 10 per cent deposit).
However the current median annual wage for London first-time buyers is £22,044, and average house price for first-time buyers in the capital is now £384,856.
Jan Crosby, Head of Housing at KPMG, said: “These figures make for frightening reading and show that housing affordability is no longer just a problem for lower-wage earners. Now, unless you earn well above average or receive an inheritance, it is unlikely you will be able to afford to buy.
Estate agents across Hackney, Tower Hamlets and Croydon agree that a shortage of stock, escalating prices, high deposit requirements and fierce competition all hit first-time buyers the hardest.
Agents in Lewisham, where the issue of affordable housing is not so rampant, were the only ones to express doubt that a crisis exists.
An agent working for Reside’s New Cross Road office, who declined to be identified in this article, told us: “There are plenty of jobs in London. The problem is only for people who don’t want to work. If you’re not lazy you don’t have a problem. You only have a [housing] problem if you’re lazy and don’t want to work.”
However this trenchant opinion was not echoed by other estate agents locally.
Darshil Modessa, a Senior Sales and Letting Consultant at Winkworth, said six out of their 15 current listings are “affordable” for first-time buyers. “They are usually looking for a one-bedroom flat up to £245,000-£260,000.”
Modessa sees five per cent mortgages and the government’s Help to Buy scheme as good solutions for prospective investors.
Adam Collier, an agent at Your Move in New Cross, said: “Our main market is first-time buyers. We want to get people in homes and put them on the ladder.” He says “60 per cent” of their listings are “affordable for first-time buyers.”
“With mortgages at five per cent being available, it is not too hard to buy a house. They [mortgage interest] are at the lowest they’ve ever been. Debt and credit cards is what makes it difficult to get a loan, not property prices.”
Two young estate agents working at the Your Move office in the Old Kent Road also said there is not a housing crisis in London. But when asked about their personal situation and their prospects as potential first-time buyers, they said they either hadn’t been “careful enough” with their savings or their applications had been so far rejected.
According to a November 2014 report by campaign group Generation Rent, east London boroughs have some of the highest renting populations in the country by constituency. 49 of London’s 73 parliamentary constituencies have a majority renting population.
As property prices continue to rise, so too will the cost of renting.
In the recent general election, the Green Party was the only major party to support rent control. They also want to abolish the right to buy council homes.
A cross-borough problem
During the recent general election, housing was identified as the key issue in Hackney by candidates of all parties.
George Athanasi, a Senior Sales Negotiator at Castles Estate Agents, said: “There are properties available, but it’s difficult for first-time buyers to get on the ladder if you put incomes into consideration, especially in the Hackney area.
Estate agents are also observing that gentrification has become a growing concern among residents with prices rising steeply.
“I’ve seen buyers having to move slightly up north. The area has become very popular in the past four to five years.”
Athanasi says average first-time buyers in Hackney are in their mid- or late-twenties, seeking a one-bedroom modern flat or an ex-council flat. Many need “help from mum and dad for their deposit,” he says.
The average property a first-time buyer will target in the area is “around £250,000 to £300,000.” Athnasasi says only six of their 15 current listings are affordable to new buyers.
Naj Hoque, Sales and Lettings Agent at Peach Properties in Shoreditch, said that even if they have a lot of first-time buyers registering with the agency, they are often outbid by investors or cash buyers: “It was even worse for first-time buyers a year ago. Now, investors are not getting as good a return as they did last year, so it’s a bit better.”
Hoque calculates 40 to 50 per cent of properties advertised by his office are suitable for first-time buyers including properties between £300,000 and £500,000.
“They usually look for a one- or two-bedroom property. Some look to rent the second room to make extra money. Many are open to ex-council flats, where you get more space for the same budget, but they are also interested in new builds or conversions,” says Hoque.
Looking at Croydon, Michael Griffin, Senior Negotiator at Bairstow Eves, says: “People who can’t afford to buy in London come to Croydon.” A one-bedroom flat in the area will sell for around £190,000, a two-bedroom for £250,000, and a two-bedroom house for £300,000.
With this price range in mind, Griffin estimates “a third” of their listings are suitable for first-time buyers.
Griffin said: “Most first-time-buyers are in their early thirties or late twenties. People were able to get mortgages a bit younger in the past. Many are getting deposits from their parents so they can buy, otherwise they can’t afford it.”
Even those who can afford it have to fight to buy: “It’s quite difficult because there’s a lot of competition.”
When asked about possible solutions to the housing crisis, Griffin said: “There is a lot of redevelopment in east Croydon, which will help people [who are] getting on the ladder.”
Sidhana Singh, a Sales Agent at H2H, says deposits are a common cause of concern among first-time buyers: “For them, it’s difficult to get on the ladder. Even for a £250,000 property, they have to get a big deposit. It’s quite a lot of money for them.
“There’s definitely a housing problem. It’d be good if there was a bit more help coming from the government with deposits, or if banks reduced rates.”
Singh estimates only ten per cent of their listings are affordable for first-time buyers.
Higher wages, same problem
In the south end of Tower Hamlets, there are plenty of young professionals working in the City and making “good money,” says Charlie Vosper, Sales Manager at Lourdes Estate Agents.
However Vosper doesn’t see a housing problem: “There is a shortage of stock coming into the market. A lot more properties are being built now, and that should equal out the demand and the offer.”
In the areas where wages are higher, so are property prices. A first-time buyer typically buys a one or two-bedroom flat in Canary Wharf, which can sell from £250,000 to as high as £700,000.
Paul Kirby, Sales Manager at Rubicon Estate Agency, said: “Financially, owners don’t need to sell, so they don’t sell. That means people have to go further away.”
Louis McKale, Director at Davey Stone’s office near Victoria Park, in the northern part of Tower Hamlets, has also noticed a change in the area: “People with money are coming here more and more. People with middle to low incomes are struggling to move into the area.”
McKale agrees that help from “wealthier parents” with deposits is common.
“Properties are sold within the first week,” he said of the high demand from first-time buyers.
Getting on the ladder
According to KMPG’s report, 69 per cent of people feel there is not enough affordable housing in the UK, and 30 per cent are concerned about being able to afford to either rent or buy a home.
Some 72 per cent of 16-17 year olds want to buy within ten years, but the housing crisis means prices are only set to rise.
KMPG and housing charity Shelter say 250,000 new homes need to be built every year to keep up with demand.
The UK average first-time buyer must earn £40,553 to get on the property ladder, against an average wage of £22,044. The average house price for first-time buyers nationally is £202,765.
Additional reporting and graphics: James Benge.