Strong wage growth over the past year has slightly improved housing affordability for first-time buyers, according to Britain’s largest building society.
Nationwide reported that the typical monthly mortgage payments for a first-time buyer with a 20 per cent deposit now account for 36 per cent of take-home pay, down from 2023’s level, although still significantly above the long-run average of 30 per cent.
Annual earnings have been rising at about 5 per cent, helping borrowers manage monthly repayments. Interest rates were lowered twice last year by the Bank of England to 4.75 per cent, bringing average mortgage rates down. However, the average house price remains high, at five times the average first-time buyer’s earnings – well above the long-run average of 3.9.
According to Nationwide, four in ten first-time buyers rely on financial support for their deposit, usually a gift or loan from family, friends or an inheritance. The Office for National Statistics reported a 3.4 per cent increase in the average house price to £292,000 in 2024, with some forecasters predicting a further 1.1 per cent rise in values this year and wages set to climb by 3.6 per cent.
Andrew Harvey, a senior economist at Nationwide, 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.”
In a bid to assist younger buyers, the government is considering loosening mortgage lending rules. Critics warn that relaxing these regulations risks giving loans to those who may struggle to repay them, while others maintain that increasing the housing supply should be the priority to address persistent affordability challenges.