Affordability is one of the greatest barriers facing people looking to buy a home. We talk a lot about deposits, but the household income needed to finance a mortgage is an equally important factor. This is because income levels are used to assess the affordability of a mortgage through the loan-to-income assessment.
First-time buyers tend to have lower deposits than existing owners who may be looking to buy a larger home. Typically, the higher the deposit, the lower the income needed to buy.
Data shows that the typical first-time buyer (FTB) takes a mortgage that is 3.3x their household income. Existing homeowners looking to move take out mortgages that average 3x their household income.
Using these average loan-to-income ratios, and the average asking price of homes for sale on Zoopla, we can calculate the household income needed to buy a home for FTBs and existing owners.
A FTB looking to buy a typical first home (priced at £250,000), with an average 20% deposit, would need an annual household income of £60,600 in order to buy. This figure is £2,400 higher than a year ago.
Those upsizing to an average-priced home currently on the market (priced at £335,000), with a larger average deposit of 35%, would need a household income of £72,600. This is £3,400 higher than a year ago.
The average UK household income is currently £33,300, according to the ONS. This means that two average earners buying together have a household income of £66,600, which is enough to buy a typical first-time buyer home. However, homeowners on the same income are likely to struggle to upsize to an averagely-priced UK home without a bigger deposit.
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First-time buyers need two average salaries to buy
First-time buyers often buy with smaller deposits - 20% on average - according to ONS. To help make buying affordable, FTBs tend to look for cheaper properties. For example, the average asking price of a home chosen by a first-time buyer is 34% lower compared to the market average.
The income a first-time buyer will need in order to buy is closely linked to the value of homes in the area. FTBs in northern England and Scotland require lower earnings compared to those in the Midlands, Wales or southern England.
Those looking to buy their first home in the North East require the lowest income to buy in the UK. A typical FTB home in the region costs £120,000, which requires an income of just under £29,100 in order to buy. In areas such as Hartlepool, homes priced around £80,000 are most popular with FTBs. Although homes sold at this price point are typically fixer-uppers or small flats, the household income needed to buy these types of properties is only £19,400.
At £31,500, Scotland has the second-lowest required income for first-time buyers. And in areas such as Ayrshire, savvy folks can buy with a household income of under £20,000.
Back in England, the further south you go, the more you need to earn in order to buy. The average first home in the Midlands is priced below £200,000, meaning the required income is below £49,000. And in southern England, the average income to buy ranges between £33,900 in Great Yarmouth to a whopping £193,900 in Kensington and Chelsea.
Upsizing homeowners need an income of £72,600 to buy
Those looking to move up the next rung of the ladder will find that a higher house price will need a higher income to buy. The average asking price of a home currently listed for sale on Zoopla is £335,000. Homeowners looking to buy such a home with a 35% deposit will need an income of £72,600.
Those planning to buy an averagely-priced home in northern England need a household income between £31,400 (Blackpool and Hull) and £78,000 (Trafford in Manchester).
A homeowner upsizing to an average home in Scotland (£200,000) would require a household income of £43,300. Yet, the income needed to buy can range from £27,100 in East Ayrshire to £62,800 in the East Lothian area.
Those buying in the Midlands or Wales will typically need a household income above £54,000. However, upsizers won’t be as required to earn as much in locations such as Blaenau Gwent (£32,500), Stoke-on-Trent (£39,000), Bolsover (£46,600) and Boston (£46,600).
Upsizers in the south of the country will need a household income higher than the income of two average earners, which currently stands at £66,600. This is down to higher house values, with asking prices commonly exceeding £300,000.
However, home owners buying in smaller cities in the south may require a lower income. House prices in cities such as Plymouth (£52,000), Norwich (£54,200), Peterborough (£56,300), Portsmouth (£57,400) and Southampton (£58,500) offer more opportunities to buy on a smaller income.
Those upsizing in London will need the highest level of income in Britain - £124,600 on average. However, our analysis shows that those looking to buy an averagely-priced home in East London (Barking and Dagenham, Havering and Newham) and South East London (Croydon, Lewisham, Bexley) will need an income below £100,000.
Why are the required incomes to buy so high in 2024?
The required income to buy has increased by 4% over the last year largely due to higher asking prices and a slight decline in the loan-to-income ratio.
To adapt to this, buyers can put down a larger deposit to reduce the size of the mortgage. If this isn’t an option, a more practical solution could be to look further afield by extending your search area, or consider other types of property.
Our data shows that relatively few first-time buyers are changing what they want from a property as they balance home ownership with complex family needs. The key route to getting more value for money is to widen the search radius and consider more markets.
We find that 2 in 5 buyers in southern England are looking further than a 10 mile radius to find their next home due to the affordability pressures of the region.
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