Housing affordability in the UK has improved marginally over the past year, though affordability remains significantly stretched compared to historical norms, according to a new report from Nationwide.
The report highlights that a typical first-time buyer, purchasing a property with a 20% deposit, would need to allocate 36% of their take-home pay toward mortgage payments. This figure is well above the long-term average of 30%.
The first-time buyer house price-to-earnings ratio (HPER) stood at 5.0 at the end of 2024, compared to a long-term average of 3.9. Harvey explained that rising rents and the broader cost-of-living crisis have made it harder for private renters to save for a deposit. Forty percent of first-time buyers in 2023/24 relied on financial help from friends or family to secure a deposit.
Despite these challenges, the housing market demonstrated resilience in 2024. Annual house price growth reached 4.7% by year end, and mortgage approvals returned to 2019 levels, even though typical mortgage rates were around three times higher. First-time buyers accounted for 54% of house purchase mortgages, up from 51% pre-pandemic.
“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,” said Andrew Harvey, senior economist at Nationwide Building Society.
Industry reactions:
Marc von Grundherr, Director of Benham and Reeves, 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.”
Verona Frankish, CEO of Yopa, 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.”
Tom Bill, head of UK residential research at Knight Frank, commented, “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.”
Matt Thompson, head of sales at Chestertons, remarked: “As one of the world capitals and leading financial hubs, London sees steady demand from domestic and corporate buyers, property investors and international students. This level of demand often outweighs the number of homes for sale which contributes to the majority of properties in the capital either holding their value or seeing a price increase. If interest rates go down further this year, London’s property market will likely see additional buyers starting their search which will inevitably fuel a more competitive market compared to last year.”
Iain McKenzie, CEO of The Guild of Property Professionals, added: “Buyer’s back pockets continue to be stretched, however, affordability is moving in the right direction with marginal improvements. Despite the challenges that the market faced during 2024, it outperformed predictions and weathered elements such as political uncertainty and mortgage rates that remained elevated for longer than many anticipated.
“While both rental increases and the cost of living has made it challenging for many to save for a deposit and get on the first rung of the ladder, there was a year-on-year increase in mortgage approvals towards the end of 2024. Confidence in the market and new buyer demand also improved.
“Looking ahead, provided inflation is kept under thumb, we should see interest rates come down in 2025. This will have a knock-on effect on mortgages, both improving affordability further and jabbing the market in the arm.
“Hopefully we will continue to see sustained and steady economic recovery, easing affordability constraints and underpinning housing market activity.”
Read the orginal article: https://propertyindustryeye.com/nationwide-affordability-report-industry-reaction/
