Homebuying has been branded ‘prohibitively expensive’ as it emerged a first-time buyer must devote 36% of their take-home pay to fund their mortgage repayments.
Affordability for those stepping onto the property ladder may have improved slightly over the past year, according to a new report by Nationwide, but still remains ‘stretched’ by historic standards.
In its latest Housing Affordability Report the mortgage lender today revealed the house price to earnings ratio was 5.0 at the end of 2024. It’s a far cry from the long-run average of 3.9.
And, the report revealed, 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%.
All this means it’s harder to build a deposit but it also comes at a time of record increases in rents.
Combined with the cost-of-living crisis, it has hampered the ability of many in the private rented sector to save, according to Nationwide’s report.
Researchers delved deeper by looking at which areas of the UK were more affordable.
Whilst London remained the least affordable region by a significant margin, affordability pressures were also high in the South of England and East Anglia. Meanwhile, in the northern regions of England and Scotland, mortgage payments as a share of take-home pay were much closer to their long run average.
How your occupation impacts mortgage affordability
The report also highlighted how, along with the place first-time buyers were choosing to locate, their occupation was also a strong factor in their ability to get onto the property ladder.
Andrew Harvey, senior economist at Nationwide, said: “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.”
He added: “Affordability is most challenging for those working in areas classified as ‘elementary occupations’, which include jobs such as construction and manufacturing labourers, cleaners and couriers, and those in care, leisure and other personal service jobs.
“In these groups, typical mortgage payments would represent over 50% of average take-home pay.”
Tackling affordability for first-time buyers
The report comes after it emerged the government was looking at ways to relax rules to make homebuying more affordable.
But whilst Nationwide observed ‘modest improvements’ in affordability, for those people anxiously juggling the cost of rent with saving for a deposit, the goal of owning a home may feel unobtainable.
Indeed, data from financial adviser Quilter this week also revealed a huge rise in people aged over 36 taking out mortgages with terms of 35 years or more in a bid to make their repayments more manageable. This, Quilter warned, could negatively impact the retirement finances of many homeowners in the future.
Karen Noye, mortgage expert at Quilter, said Nationwide’s report highlighted the immense pressure many prospective buyers faced in trying to get on the property ladder.
“Despite modest improvements in affordability over the past year,” she said, “housing remains prohibitively expensive for many, with the average first-time buyer still needing to dedicate 36% of their take-home pay to a mortgage.
“The long-run average of 30% feels like a distant memory for today’s buyers, particularly in the South of England and London, where house price-to-earnings ratios remain at record highs.”
