Nationwide Building Society says mortgage affordability remains ‘stretched’ by historic standards with London and the South East the most affected areas of the country. The North of England and Scotland are the least affected areas according to a recently published report.
Despite what Nationwide’s Senior Economist Andrew Harvey describes as a ‘modest improvement in UK housing affordability’ in the last 12 months fuelled by earnings growth being marginally higher than house price growth, affordability remains challenging.
“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%.”
says Harvey, adding
“Furthermore, 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.”
Nationwide say around 40% of first time buyers had help raising a deposit in 2023/24.
But the general market positivity at the start of 2025 is reflected in the building society’s mortgage approval numbers which returned to 2019 levels; and first time buyer share of house purchase mortgages was higher in 2024 (54%) than 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.”
says Harvey. Unsurprisingly across the country affordability varies with London and the South East coming out as the least affordable regions whereas in the North of England and Scotland, mortgage payments as a share of take-home pay are much closer to their long run average.
Nationwide also looked at what level of income a first time buyer would have compared to peers if they were purchasing the typical first-time buyer property in each region; with 20% deposit and four times their income mortgage.
“If the typical buyer is located higher in the income distribution it suggests affordability is more stretched, with more people priced out of the market. 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.”
said Harvey, concluding
“We’ve also examined how this has changed over the last five years. In the southern regions, there has been no movement in terms of where the buyer would sit in the income spectrum. By contrast, in Scotland and the North, there’s actually been a slight improvement, moving from the 25th to 20th income percentile. In Yorkshire & The Humber, Northern Ireland, Wales and the East Midlands however, there has been a deterioration in affordability, with buyers now located in higher percentiles compared with 2019. This reflects that house price growth in these areas has exceeded earnings growth over this period.”
