Housing affordability in the UK has shown a “modest improvement” over the past year, according to Nationwide, although buyers continue to face challenges particularly in certain areas.
Although earnings growth has slightly outpaced house price growth, and borrowing costs have eased marginally, housing remains less affordable compared to historical standards.
According to the building society’s latest affordability report, a typical first-time buyer (FTB) earning the average UK income would spend around 36% of their take home pay on their mortgage payments, assuming they purchased a typical home with a 20% deposit. This compares to a long-run average of 30%.
Andrew Harvey, senior economist at Nationwide said: “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.”
Affordability varies by occupation
Those in managerial or professional roles typically struggle less with affordability, as they are often well-paid and therefore face lower mortgage payments relative to their earnings.
In contrast, those who work in lower paid roles, such as construction workers or care workers, face much greater affordability pressures, with mortgage payments often taking up more than half their take-home pay.
Mr Harvey said: “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.
North of England and Scotland most affordable areas to buy
Affordability has improved slightly in all areas of the UK the report said, but there remain significant regional variations.
The North of England and Scotland are the regions where it’s most affordable to buy, with places like Hartlepool, Burnley and Aberdeen having the most manageable house price-to-earnings ratios.
London and the South of England are the least affordable regions to buy, with house prices significantly outpacing average earnings. In the capital, the average cost of a property is more than eight times the average income, compared to Scotland, where the average price of a home is three times average income.
To look at how these variations are impacting potential buyers, the building society examined where in the income distribution a prospective purchaser would sit if they were purchasing the typical first-time buyer property in each region, assuming they were to put down a 20% deposit and borrow four times their income. The higher the income distribution, the more stretched affordability is.
Mr Harvey said: “In broad terms, the picture that emerges is that this hypothetical typical buyer is located further up the income spectrum as you go from north to south. For example, in Scotland and the North, this typical buyer would be in the 20th income percentile, while in the South West they would be in the 75th percentile and above the 90th percentile in London.”
