There’s been only a modest improvement to housing affordability over the past year says the Nationwide – but it remains stretched by historic standards.
The improvement is down to earnings growth marginally outpacing house price growth and a slight reduction in average borrowing costs.
Even so, 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%.
Furthermore, house prices remain high relative to average earnings, with the first-time buyer house price to earnings ratio (HPER) standing at 5.0 at the end of 2024, still far above the long run average of 3.9.
Consequently, the deposit hurdle remains high. Nationwide says this is a challenge that has been made worse by the record increase in rents in recent years, which, together with the cost-of-living crisis more generally, has hampered the ability of many in the private rented sector to save.
The lender says it’s therefore 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.
Andrew Harvey, chief economist at Nationwide, says: “We explored how affordability varies for people in different professions. Perhaps unsurprisingly, mortgage payments relative to take-home pay are lowest for those in managerial and professional roles, where average earnings tend to be higher.
“Note that these are benchmark measures, which use the average earnings in each occupational group and the UK typical first-time buyer property price. In practice, those in higher paid occupations may choose to buy more expensive properties.
“Affordability is most challenging for those working in areas classified as ‘elementary occupations’, which include jobs such as construction and manufacturing labourers, cleaners and couriers, and those in care, leisure and other personal service jobs. In these groups, typical mortgage payments would represent over 50% of average take-home pay.
“The differences in affordability reflect the divergence in earnings by occupational group. For example, those working in professional occupations typically take home around twice as much per year than those working in sales and customer service.”
All regions have seen a modest improvement in affordability compared to 2023 when looking at the costs of servicing the typical mortgage as a share of take-home pay.
London actually saw the largest improvement in affordability, reflecting relatively weak house price growth in 2024. Nevertheless, the capital remains the least affordable region by a significant margin.
Affordability pressures continue to be more pronounced in the South of England and East Anglia, whilst in the northern regions of England and Scotland, mortgage payments as a share of take-home pay are much closer to their long run average.
House price to earnings ratios remain broadly similar to a year ago across the UK, with London continuing to have the highest house price to earnings ratio at 8.0 and Scotland the lowest at 3.0.
