House price growth and mortgage activity have shown “surprising resilience,” despite affordability issues, according to a report from Nationwide, the UK’s largest building society.
The study also revealed that individuals working in roles such as cleaners, couriers, labourers, customer service or caring professions could potentially see over half of their take-home pay consumed by their mortgage, based on a typical first-time buyer property.
Andrew Harvey, a senior economist at Nationwide Building Society, noted that there has been a slight improvement in UK housing affordability over the past year, due to earnings growth slightly exceeding house price growth and a minor decrease in average borrowing costs. However, he stated that housing affordability remains “stretched” by longer-term standards.
Mr Harvey said: “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%.”
He added: “Furthermore, house prices remain high relative to average earnings, with the first-time buyer house price-to-earnings ratio 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.”
He pointed out that the challenge of saving for a deposit has been exacerbated by record rent increases in recent years and the broader cost-of-living crisis.
According to a report in 2023-24, approximately 40% of first-time buyers received assistance with their deposit, via gifts or loans from family and friends, or through inheritance. Commenting on the affordability issues, Mr Harvey said: “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%).
“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.”
Exploring affordability across different careers, the report noted that those in managerial and professional jobs typically found mortgage payments to represent the smallest proportion of take-home pay due to their higher average earnings.
It revealed that mortgage payments for a standard first-time buyer home would account for about a quarter (25.6%) of the net salary for managers, directors and senior officials.
For those in professional occupations, mortgage payments could gobble up to 30.9% of their take-home pay. Skilled tradespeople looking to purchase a typical first-time buyer property might see 41.3% of their earnings go towards mortgage payments, while plant and machine operatives could face an even higher percentage at 43.0%.
The figures are more daunting for people in admin and secretarial roles, with 47.2% of their take-home pay potentially needed for mortgage payments. Sales and customer service staff, along with those in caring and leisure services, could find 51.9% of their income swallowed by mortgage costs.
For individuals in elementary occupations, such as construction and manufacturing labourers, cleaners, and couriers, the proportion rises slightly to 52.0%. Mr Harvey clarified that these figures are “benchmark measures” based on average earnings within each occupational group against the UK’s typical first-time buyer property price.
He noted: “In practice, those in higher paid occupations may choose to buy more expensive properties.”
Additionally, Mr Harvey mentioned that house price-to-earnings ratios have remained broadly similar to last year across the UK, with London having the highest ratio at 8.0 and Scotland the lowest at 3.0.
Nationwide also looked at the most and least affordable local authorities in UK nations and regions.
Here are the least affordable authorities per nation or region, as measured by the typical first-time buyer house price-to-earnings ratio (data is not available for Northern Ireland):
London, Kensington and Chelsea, 13.6
Outer South East, Chichester, 8.5
Outer Metropolitan, Three Rivers, 7.8
South West, Bath and North East Somerset, 7.8
East Anglia, Cambridge, 7.7
Yorkshire and the Humber, York, 6.3
West Midlands, Wychavon, 6.3
East Midlands, Derbyshire Dales, 6.3
North West, Trafford, 6.2
Wales, Cardiff, 5.6
Scotland, Edinburgh, 5.4
North, Westmorland and Furness, 4.4
Here are the most affordable authorities per nation or region, as measured by the typical first-time buyer house price-to-earnings ratio (data is not available for Northern Ireland):
Scotland, Aberdeen, 2.5
North West, Burnley, 2.8
North, Hartlepool, 2.8
Yorkshire and the Humber, North East Lincolnshire, 3.3
Wales, Blaenau Gwent, 3.5
West Midlands, Stoke-on-Trent, 3.7
East Midlands, Chesterfield, 4.1
East Anglia, Great Yarmouth, 4.5
Outer Metropolitan, Surrey Heath, 4.8
Outer South East, Tendring, 5.0
South West, Swindon, 5.3
London, Enfield, 6.2