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.

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.

This is according to the latest research from Nationwide Housing Affordability report which also reveals that 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%.

The report also reveals that house prices remain high relative to average earnings, with the first-time buyer (FTB) 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. 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.

Commenting on this point Andrew Harvey, Senior Economist, said:“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.”

Despite these affordability challenges, mortgage market activity and house prices proved surprisingly resilient in 2024. Annual house price growth ended the year at 4.7%, a marked improvement from the small declines seen at the start of 2024.

The number of mortgage approvals returned to 2019 levels, despite typical mortgage rates being around three times higher. Perhaps even more remarkably, first-time buyers’ share of house purchase mortgages was actually higher in 2024 (54%) than it was pre-pandemic (51%).

Harvey added: “Looking ahead, providing the economy recovers steadily, as we expect, the underlying pace of housing market activity is likely to continue to strengthen gradually as affordability constraints ease through a combination of modestly lower interest rates and earnings outpacing house price growth.”

Nationwide also explored how affordability varied 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.

Director of Benham and Reeves, Marc von Grundherr, commented:“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.”

Hargreaves Lansdown head of personal finance Sarah Coles saw little to cheer any first time buyers. “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.”

Yopa chief executive Verona Frankish took a similar line: “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.”

Frankish added: “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.”

Source:  Mortgage Strategy