A landlord gave me a call last week to discuss the affordability of property in Watford and the surrounding areas. It was quite convenient really as I’d been looking into affordability the same
week so had some interesting figures to reveal to him. With the current national property market in recovery and with local house prices increasing rapidly it’s challenging to get the most up to date figures but the advice or suggestion I gave this landlord was to look at a little trick I have adopted for finding more affordable areas. One simple way of looking at affordability is to find the ratio of average property price to the average salary. The lower the ratio the more affordable properties are.
I’ve looked at the affordability ratio in all of Watford’s WD postcodes and thought it me be interesting to know how some of the local areas stack up. WD24 has an average property value of around £292,693 and the average salary in that area is £27,740 which makes the ratio 1:11.8. WD18 is very similar as you might expect having similar housing stock with a ratio of 1:11.6. I was quite surprised to see that WD25 had an average value £363,639 and a lower average salary of £22,312 taking the ratio up to 1:16 making it a less affordable area which is perhaps why as I mentioned in previous article only 17% of the stock is privately rented.
As we don’t just operate in Watford and are happy to cover Rickmansworth and Bushey too it’s worth noting that in WD3 the price to earnings ratio is 1:18 and in Bushey (WD23) it’s 1:15.4 making both areas close to 50% and 33% less affordable then WD18/24. It’s likely that this is down to the larger more expensive houses in these areas and perhaps the searches are a little broad as one of my local readers pointed out to me recently. But if you look at the average price of flats in WD18/24 then WD3 then WD23 they are £219,201, £298,912 and £325,685 respectively so I would say that confirms something about affordability as you are looking at similar properties not a large 4 bed detached property in Rickmansworth vs a small 1 bed flat in Watford!
Going back to the affordability ratio, the above figures would indicate WD18/24 is the most affordable of the discussed areas and could be a good place to invest. Of course there are lots of things to consider when investing and affordability is just one of them. We regularly look at yield vs capital growth and can drill down to Street vs Street to check which has performed best in the last 1-15
years and what local developments ‘could’ effect prices/yield. The above figures don’t make Rickmansworth or Bushey look as good for investors but I know there are many investors out there looking to buy in these areas!  Many of which are my clients who want more property. If capital growth is more important to you then you might be able to skip the yield calculation and skip the affordability test but my advice would be to at least consider them all.
If you don’t know how to work out the figures then give me a call or meet me for a coffee and as always I’ll be happy to offer a free and impartial 2nd opinion which of course you can take or leave! You can reach me on 01923 375 300 or email james@caleyandco.com