House price affordability improves, but average first-time buyer still paying five times salary

Wages outstripped house price growth last year resulting in a “modest improvement” in affordability for buyers, according to mortgage lender Nationwide.

Despite this, the average first-time buyer in the UK is still paying five times their annual salary when purchasing a property. This is significantly higher than the long-term average of 3.9 times earnings.

Although mortgage rates fell slightly last year as the Bank of England cut interest rates, high borrowing costs are still a barrier to home ownership for many. The average mortgage rates on both two and five-year deals are still significantly higher than before the pandemic, at more than 5%.

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“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,” says Andrew Harvey, senior economist at Nationwide. For comparison, the long-term average is 30%.

With this in mind, the slight improvement in affordability is “about as useful as a 10% discount on a diamond-crusted tiara,” according to Sarah Coles, head of personal finance at Hargreaves Lansdown.

Forty percent of first-time buyers had help with a mortgage deposit

Data from the English Housing Survey reveals that around 40% of first-time buyers received help with a deposit in 2023/24. The majority of this came in the form of a gift or loan from family or friends, with some also receiving this in the form of an inheritance.

Harvey says this data is unsurprising given the record increase in rents in recent years. Separate data from Zoopla, published at the end of last year, shows rents have risen by 27% since the end of the Covid-19 lockdowns. This means the average renter is now paying £3,240 per year more than they were in 2021.

Those without help from family often look for other ways to boost their chances of getting on the ladder, such as opting for a low-deposit mortgage or increasing the length of their mortgage term.

“Recent FCA data we obtained from a Freedom of Information request revealed a significant rise in people aged over 36 taking out mortgages with terms of 35 years or more. In the first nine months of 2024 alone, over 22,000 such loans were sold,” says Karen Noye, mortgage expert at financial services company Quilter.

While having products like this on the market gives buyers flexibility, it also comes with risks including the possibility that borrowers will still be paying off their mortgage in retirement. Increasing the term of the loan also means you will end up paying more in interest repayments overall.

Most affordable region for first-time buyers

Although Nationwide’s House Price Index (HPI) shows that prices increased by 4.7% in 2024 overall, all regions saw a “modest improvement” in affordability compared to 2023. This is because wages grew faster than house prices and borrowing costs went down slightly.

The below table highlights the most affordable local authorities within each part of the country.

Source: Nationwide

Challenges for older buyers

While first-time buyers often face the biggest hurdles, particularly those paying rental costs while trying to save, Coles points out that older homeowners aren’t immune to affordability challenges either.

Many will have faced an unwelcome shock in recent years when rolling off a relatively cheap fixed-rate mortgage that they agreed before the pandemic. Around 1.6 million mortgage deals were due to come to an end last year, according to industry body UK Finance.

“In terms of overall resilience, home ownership is particularly vital as we approach retirement,” Coles says. “It’s one reason why local authorities in the home counties (where home ownership levels are higher) have better retirement resilience, while London and other cities (where more people rent or own a smaller chunk of their home) have lower scores.”

Research from the Pensions Policy Institute and Aviva, published last year, revealed as many as one in six retired households could be private renters 20 years from now. With the average rent in Britain now totalling more than £1,300 per month, this could add many thousands to the cost of retirement.

Meanwhile, separate survey data from financial services company SunLife suggests as many as half a million pensioners may currently be lumbered with a mortgage.