Growth in earning makes home purchasing more affordable for first-time buyers

27th January 2025

New research by Nationwide has found that strong earnings growth has made home purchasing slightly more affordable for first-time buyers.

The data shows that a typical buyer with a 20% deposit now spends 36% of their monthly take-home pay on mortgage payments, down from 2023 but still above the long-run average of 30%. Earnings growth remains at about 5%, and interest rates were lowered to 4.75% last year, easing monthly mortgage repayments. However, the average house price has risen by 3.4% to £292,000, with a cost-to-earnings ratio of 5.0, significantly above the long-term average of 3.9.

Commenting on the report, Sarah Coles, Head of Personal Finance from Hargreaves Lansdown said “The good news is that homes are very slightly more affordable than they were this time last year – the bad news is that they’re so far out of reach that a slight improvement is about as useful as a 10% discount on a diamond encrusted tiara. And it’s not just first-time buyers facing a property nightmare. It’s a huge headache for older people too.

“First-time buyers have two major issues. Mortgage payments are eye-watering. The typical first-time buyer with a 20% deposit would need to spend 36% of their take-home pay on the mortgage – more than the long-run average of 30%. Meanwhile, the first-time buyer price-to-earnings ratio is 5 – which makes it harder to qualify for a mortgage in the first place.

“It means building a decent deposit is absolutely critical if you’re ever going to make it onto the property ladder. It’s one reason why 40% of first-timers need help from friends or family. ”

“There are massive differences in affordability across the country, with London and the surrounding areas suffering the biggest issues. The HL Savings & Resilience Barometer delved into property within boroughs and local authorities and identified the areas with the lowest levels of home ownership. London dominates the list, while Manchester is the worst place for home ownership levels outside the capital.

“In terms of overall resilience, home ownership is particularly vital as we approach retirement. 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.

“It means property affordability isn’t just an issue for young people trying to get onto the property ladder, it’s a major issue for older people who bought later and have a battle on their hands to pay the mortgage before retirement. It’s also a serious problem for those who have given up entirely on owning a home of their own and need to keep a roof over their head in retirement.”

20 areas with the lowest levels of home ownership

1 Westminster London
2 Tower Hamlets London
3 Hackney London
4 Islington London
5 Camden London
6 Manchester North West
7 Kensington And Chelsea London
8 Liverpool North West
9 Kingston Upon Hull Yorkshire and The Humber
10 Newham London
11 City Of London London
12 Southwark London
13 Nottingham East Midlands
14 Hammersmith And Fulham London
15 Middlesbrough North East
16 Glasgow City Scotland
17 Newcastle Upon Tyne North East
18 Burnley North West
19 Dundee City Scotland
20 Lambeth London