Leeds Building Society’s innovative approach to enhanced affordability

The challenge for first-time buyers

The difficulty first-time buyers are currently facing is highlighted by historical data from the Office for National Statistics (ONS). In 1953, the average house price in England was £1,692, with an average salary of £333, resulting in a house price to salary ratio of around 5 times. Fast forward to 2022-2023, the average house price is just shy of £290,000, with an average salary of £34,000, making the ratio 8.52 times salary. This disparity significantly impacts first-time buyers, particularly those aged 25 to 34, whose homeownership rates have collapsed over the last 30 years. The average deposit required has increased to nearly £70,000, often necessitating parental support.

The housing shortage

One major issue is the insufficient housing stock in the UK. Leeds Building Society’s research estimates that over the next 15 years, the UK will need an additional 5 million homes, averaging 340,000 homes per year, far exceeding the government’s current targets. This shortage contributes to housing being the least affordable it has been in 150 years, necessitating innovative solutions to support first-time buyers.

Moving towards carbon neutrality

Leeds Building Society is also committed to reducing its carbon footprint, aiming to cut carbon emissions by 50% by 2030 and achieve carbon neutrality by 2050. A significant part of this effort involves improving the energy efficiency of mortgaged properties. The average Energy Performance Certificate (EPC) rating in the UK is currently a D, and there is a pressing need to raise this to at least a C to reduce carbon emissions.

Innovative affordability assessment

To support the purchase of energy-efficient homes, Leeds Building Society has developed a unique approach to affordability assessment. The average annual energy bill for a property with an EPC rating of D in 2022 was £1,179. However, moving to a new build property with an A or B rating could result in a 20% saving on energy bills. Approximately 85% of new build properties since 2020 have an A or B rating, allowing Leeds Building Society to factor these savings into their affordability calculations.

Consider a first-time buyer couple with a joint income of £55,000, a loan commitment of £250, childcare costs of £500, looking to borrow £165,000 over 25 years for a property valued at £220,000 (75% loan to value). For a property built before 2020, they would be eligible for a loan of £156,066. However, if the property was built from 2020 onwards and has a higher energy efficiency rating, they could borrow £178,807—an increase of nearly £23,000. This example demonstrates how Leeds Building Society’s new approach can significantly benefit buyers of energy-efficient homes.