The proportion of high-loan-to-value (LTV) lending reached its highest level for over a decade, while the house price to earnings ratio sank slightly below the 20-year average to 4.7.
The analysis released by Nationwide points to improving affordability conditions for many first-time buyers, as house prices continue to rise at a slower pace than earnings and mortgage rates have steadily declined.
Moneyfacts reports that a two-year fixed rate deal is currently 5.04%, compared to 5.8% a year ago.
But in some regions, the struggle to get on the housing ladder continues to be tough.
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Impact on take-home pay
Nationwide’s main affordability benchmark shows that 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 32% of their take-home pay. This is slightly above the long-run average of 30% but well below the high of 48% recorded in 1989.
Nationwide also noted an improvement in the first-time buyer house price to earnings ratio of 4.7, down from around 5.7% between 2021 and 2022.
Andrew Harvey, Nationwide’s senior economist, said: “This is a continuation of the trend seen over recent years, with the ratio now slightly below its 20-year average. Consequently, this suggests it is a little easier for prospective buyers to save for a deposit, although it is still particularly challenging for those in the private rented sector, given rental increases in recent years.”
Regional affordability pressures
On average, a 10% deposit for a typical first-time buyer property is around £23,000. Based on saving 10% of average net pay, the equivalent of around £320 per month, it would take a prospective buyer nearly six years to accumulate this.
However, deposit levels vary considerably by region, reflecting differences in average house prices.
For example, a 10% deposit in London is over three times larger than the equivalent in the North. It would also take a Londoner nine years to save for their deposit, versus around four years for someone buying in the North, based on saving 10% of their average net pay.
As a consequence, in 2024/25, over a third of first-time buyers had some assistance raising a deposit, either in the form of a gift or loan from family or friends or through an inheritance.
Most regions have seen a slight improvement in their house price to earnings ratios relative to a year ago. Overall, this now sits at 4.7. London continues to have the highest house price to earnings ratio at 7.5 and Scotland the lowest at 2.9.
Harvey said: “Looking ahead, we expect housing market activity to strengthen a little further as affordability continues to improve gradually via income growth outpacing house price growth and a further modest decline in interest rates.”
