House affordability improves, but new buyers still paying five times salary
Nationwide finds four in ten buyers need a loan or gift from friends or family to raise enough for home deposit.
Around four in 10 first-time buyers need a gift or loan from relatives or friends, or an inheritance to get the deposit to buy a home, Nationwide reported.
Despite modest improvements in house affordability as wages rise faster than prices, Britainās biggest building society found that prospective buyers with average UK income, buying a typical firstātime buyer property with a 20 per cent deposit faced monthly mortgage payments equivalent to 36 per cent of their take-home pay ā well above a long term average of 30 per cent.
It found house prices remain high relative to average earnings, with the first-time buyer house price-to-earnings ratio(hper) standing at 5 times salary at the end of 2024, far above the long-run average of 3.9.
Andrew Harvey, a senior economist at Nationwide, said that housing affordability āremains stretched by historic standardsā with first-time buyers still facing the hurdle of high deposits.
āThis is a challenge 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.
āIt is not surprising that a significant proportion of first-time buyers have to draw on help from friends and family to raise a deposit.
āIn 2023-24, about 40 per cent 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.ā
Nationwide, the UKās biggest building society, said affordability pressures are strongest in southern England and East Anglia, while in northern England and Scotland mortgage payments as a share of take-home pay are closer to their long term average.
It found that London had seen the largest improvement in affordability, reflecting relatively weak house price growth last year and high wages. However, the city remains the least affordable UK region by a significant margin.
Mr Harvey added: āDespite these affordability challenges, mortgage market activity and house prices proved surprisingly resilient in 2024.
āAnnual house price growth ended the year at 4.7 per cent, a marked improvement from the small declines seen at the start of 2024.
āThe number of mortgage approvals returned to 2019 levels, despite typical mortgage rates being around three times higher. Perhaps even more remarkably, first-time buyersā share of house purchase mortgages was actually higher in 2024 (54%) than it was pre-pandemic (51%).
Nationwide said that if the economy recovered steadily, as it expects, the housing market would continue to strengthen gradually as affordability constraints eased through lower interest rates and growing wages.
Its research also examined how affordability differs by occupation and region.
It found that people working as cleaners, couriers, labourers and in customer service or caring professions could potentially see more than half their take-home pay swallowed up by their mortgage, based on a typical first-time buyer property.
It found that mortgage payments on a typical first-time buyer property would swallow up around a quarter (25.6%) of the take-home pay of managers, directors and senior officials. For those in professional occupations more widely, this increases to 30.9 per cent.
Mortgage payments for those in skilled trades buying a typical first-time buyer property would account for 41.3 per cent of take-home pay, increasing to 43 per cent for plant and machine operatives.
For people in admin and secretarial roles it would be 47.2 per cent, for sales and customer service staff, these mortgage payments would represent 51.9 per cent of take-home pay, which is the same for people working in caring and leisure services.
For those working in elementary occupations, including construction and manufacturing labourers, cleaners and couriers, the proportion is 52 per cent.
House price-to-earnings ratios remain broadly similar to a year ago across the UK, with London continuing to have the highest ratio at 8.0 and Scotland the lowest at 3.0.
Nationwide also found that regional disparities remain significant. Affordability pressures are strongest in the South of England and East Anglia, while 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 the report says.
At local levels, affordability varies widely. Kensington and Chelsea remains the least affordable area in Britain, with a house price to earnings ratio (HPER) of 13.6, while Aberdeen is the most affordable, with an HPER of just 2.5.
Other affordability hotspots include Chichester in West Sussex (HPER 8.5), Bath and North East Somerset in the South West, and Cambridge in East Anglia. In Wales and Scotland, Cardiff and Edinburgh are the least affordable cities, at 5.6 and 5.4, respectively.
Burnley, Hartlepool, and North East Lincolnshire are among the most affordable areas, with HPERs below 3.0. Swindon emerged as the most affordable location in the South West, while Enfield, with an HPER of 6.2, was the most affordable London borough.