The housing market saw a modest improvement in affordability in 2024, as earnings growth slightly outpaced house price increases and borrowing costs declined, research from Nationwide’s latest Housing Affordability Report has revealed.
However, housing remained historically unaffordable, with prospective buyers facing steep financial challenges.
According to the report, the typical first-time buyer spent 36% of their take-home pay on mortgage payments in 2024, well above the long-term average of 30%.
The first-time buyer house price-to-earnings ratio (HPER) remained elevated at 5.0, compared to the long-run average of 3.9.
In London, the least affordable region, the HPER stood at 8.0, while Scotland boasted the lowest ratio at 3.0.
Rising rents and the cost-of-living crisis further hindered potential buyers’ ability to save.
Around 40% of first-time buyers in 2024 relied on financial assistance from family or friends to secure a deposit.
Despite these hurdles, first-time buyers accounted for 54% of house purchase mortgages in 2024, a rise from the pre-pandemic share of 51%.
Regional disparities also highlighted stark affordability challenges.
London continued to top the unaffordability charts, with Kensington and Chelsea recording a HPER of 13.6, the highest in Great Britain.
In contrast, Aberdeen was the most affordable area, with a HPER of just 2.5.
Local affordability varied significantly, with sought-after areas like Bath, Cambridge, and York proving particularly expensive in their respective regions.
Conversely, towns such as Burnley, Hartlepool, and North East Lincolnshire offered more accessible options for buyers, reflecting a HPER below 3.0.
Andrew Harvey, senior economist at Nationwide, said: “There has been a modest improvement in UK housing affordability over the last year, due to earnings growth marginally outpacing house price growth and a slight reduction in average borrowing costs.
“Nonetheless, housing affordability remains stretched by historic standards.
“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%.
“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.”
Harvey added: “Despite these affordability challenges, mortgage market activity and house prices proved surprisingly resilient in 2024.
“All regions have seen a modest improvement in affordability compared to 2023 when looking at the costs of servicing the typical mortgage as a share of take-home pay.
“London actually saw the largest improvement in affordability, reflecting relatively weak house price growth in 2024.
“Nevertheless, the capital remains the least affordable region by a significant margin.
“Affordability pressures continue to be more pronounced in the South of England and East Anglia, whilst in the northern regions of England and Scotland, mortgage payments as a share of take-home pay are much closer to their long run average.”
Reaction:
Guy Gittins, CEO of Foxtons:
“In recent years the property market has faced the impact of higher interest rates and the resulting increase to mortgage rates, which stretched monthly affordability for many.
“As interest rates have begun to reduce over the past year, the appetite of the nation’s homebuyers has begun to return.
“Mortgage approval levels have climbed by 31% over the last 12 months versus the 12 months prior.
“And, at the same time, there’s been some 3.4% more homes sold across the UK market, with over one million transactions taking place over the last 12 months.
“We currently expect 2025 to bring more of the same and, certainly across the London market, we’ve seen a flurry of buyer activity already this year.”
Karen Noye, mortgage expert at Quilter:
“The Nationwide Housing Affordability Report highlights the immense pressure many prospective buyers face in trying to get on the property ladder.
“Despite modest improvements in affordability over the past year, 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 strain is particularly evident in the increasing reliance on longer mortgage terms.
“Recent Financial Conduct Authority (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.
“This trend represents a 156% increase since 2019 and shows how affordability pressures are pushing borrowers into commitments that extend well into their 70s.
“While longer terms can reduce monthly repayments, they lead to dramatically higher total borrowing costs and delay financial independence.
“For many, this situation is further exacerbated by record rental costs and the ongoing cost-of-living crisis, which have hampered the ability to save for a deposit in the first place.
“Even with the resilience seen in the housing market and surprising levels of first-time buyer activity, the reality is that affordability constraints are creating significant long-term risks for individuals’ financial security.”
Marc von Grundherr, director of Benham and Reeves:
“What you do for a career and where you choose to do it remain the driving factors behind your property purchasing potential, but whilst housing affordability certainly remains an obstacle, it’s far from a deterrent, with over a million homebuyers making their move over the last year alone.
“This is despite the fact that today’s buyers are contending with far higher mortgage rates than they’ve become accustomed to in recent years and, with hopes that the cost of borrowing will ease in 2025, we expect homeownership to remain very much the focus of the nation.”
Verona Frankish, CEO of Yopa:
“Housing market affordability remains a significant issue for many and whilst we may be seeing more existing buyers make their move, the number of first-time buyer transactions taking place across England has fallen by 43% on an annual basis, as they struggle to overcome the high cost of getting that first foot on the property ladder.
“Whilst there are a number of schemes aimed at helping first-time buyers onto the ladder, we need to see the government deliver on its promises of building more homes if any meaningful progress is to be made with respect to addressing housing affordability across the nation.”
Toby Leek, NAEA Propertymark president:
“Northern parts of the UK such as across Scotland and the North of England are becoming increasingly desired locations due to their increased levels of affordability.
“However, this is having an impact on prices across other regions as a result.
“The UK’s latest House Price Index found that the North East was the English region with the highest house price growth in the 12 months to November 2024 at 5.9%.
“Also, the figures demonstrate that the average house price in Scotland in November 2024 was £195,000 and £306,000 in England.
“This situation is unlikely to sustain itself, which is why we look forward to working with governments across all nations to help support the concept of delivering a new generation of sustainable housing to ensure housing supply keeps pace with intense current demand.”
