0:02 AM, 24th January 2025, About 2 hours ago
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Housing affordability has improved over the past year because earnings growth is exceeding house price growth, Nationwide reports.
The report highlights that house prices remain high relative to average earnings, with the first-time buyer (FTB) house price to earnings ratio (HPER) was 5.0 at the end of 2024.
That’s much higher than the long-term average of 3.9.
This, Nationwide says, poses a challenge for aspiring homeowners, who struggle with the high cost of living and rising rents, which have hindered the ability of many to save for a deposit.
The lender’s senior economist, Andrew Harvey, said: “There has been a modest improvement in UK housing affordability over the last year, due to earnings growth marginally outpacing house price growth and a slight reduction in average borrowing costs.
“Nonetheless, housing affordability remains stretched by historic standards.
“A prospective buyer earning the average UK income and buying a typical first-time buyer property with a 20% deposit would have a monthly mortgage payment equivalent to 36% of their take-home pay – well above the long-run average of 30%.”
He adds: “It’s not surprising that a significant proportion of first-time buyers have to draw on help from friends and family to raise a deposit.
“In 2023/24, around 40% of first-time buyers had some assistance raising a deposit, either in the form of a gift or loan from family or friends, or through an inheritance.”
Nationwide is also highlighting regional disparities in affordability and while all regions saw modest improvement compared to 2023, London remains the least affordable region.
Affordability pressures are more pronounced in the South of England and East Anglia, while the northern regions of England and Scotland exhibit more manageable mortgage payments as a share of take-home pay.
The report also reveals the least and most affordable local authorities in each region.
Kensington and Chelsea in London emerges as the least affordable local authority in Great Britain, with a HPER of 13.6.
Conversely, Aberdeen in Scotland is the most affordable authority, with average FTB house prices only 2.5 times average earnings.
Tom Bill, the head of UK residential research at Knight Frank, said: “Affordability has come into sharper focus as mortgage rates climb, which we expect to produce stronger house price growth in lower-value markets.
“Underpinned by the fact people are still adjusting their work/life balance since Covid, demand will gravitate away from large metropolitan locations and into areas that have traditionally been less in-demand, meaning the gap between London and the rest of the country should narrow rather than widen.”
Toby Leek, the NAEA Propertymark president, said: “Northern parts of the UK such as across Scotland and the North of England are becoming increasingly desired locations due to their increased levels of affordability.
“However, this is having an impact on prices across other regions as a result.
“The UK’s latest House Price Index found that the North East was the English region with the highest house price growth in the 12 months to November 2024 at 5.9%.
“Also, the figures demonstrate that the average house price in Scotland in November 2024 was £195,000 and £306,000 in England.
“This situation is unlikely to sustain itself, which is why we look forward to working with governments across all nations to help support the concept of delivering a new generation of sustainable housing to ensure housing supply keeps pace with intense current demand.”
Director of Benham and Reeves, Marc von Grundherr, said: “What you do for a career and where you choose to do it remain the driving factors behind your property purchasing potential, but whilst housing affordability certainly remains an obstacle, it’s far from a deterrent, with over a million homebuyers making their move over the last year alone.
“This is despite the fact that today’s buyers are contending with far higher mortgage rates than they’ve become accustomed to in recent years and, with hopes that the cost of borrowing will ease in 2025, we expect homeownership to remain very much the focus of the nation.”
The chief executive of Yopa, Verona Frankish, said: “Housing market affordability remains a significant issue for many and whilst we may be seeing more existing buyers make their move, the number of first-time buyer transactions taking place across England has fallen by 43% on an annual basis, as they struggle to overcome the high cost of getting that first foot on the property ladder.
“Whilst there are a number of schemes aimed at helping first-time buyers onto the ladder, we need to see the government deliver on its promises of building more homes if any meaningful progress is to be made with respect to addressing housing affordability across the nation.”
Karen Noye, a mortgage expert at Quilter, said: “The Nationwide Housing Affordability Report highlights the immense pressure many prospective buyers face in trying to get on the property ladder.
“Despite modest improvements in affordability over the past year, housing remains prohibitively expensive for many, with the average first-time buyer still needing to dedicate 36% of their take-home pay to a mortgage.
“The long-run average of 30% feels like a distant memory for today’s buyers, particularly in the South of England and London, where house price-to-earnings ratios remain at record highs.”
Sarah Coles, the head of personal finance at Hargreaves Lansdown, said: “The good news is that homes are very slightly more affordable than they were this time last year – the bad news is that they’re so far out of reach that a slight improvement is about as useful as a 10% discount on a diamond encrusted tiara.
“And it’s not just first-time buyers facing a property nightmare. It’s a huge headache for older people too.”
