The value of a 20 per cent deposit compared to first-time buyer earnings has hit a record high, and is up from 102 per cent a year ago.
First-time buyer mortgage payments, based on an 80 per cent loan to value (LTV) mortgage at prevailing mortgage rates, are currently slightly above the long run average, at 31 per cent of take-home pay.
In the third quarter of this year, the first-time buyer house price to earnings ratio stood at 5.5, above the previous high of 5.4 in 2007 and above the long run average of 3.8.
London continues to have the highest house price to earnings ratio at 9.0 although this is still below its record high of 10.2 in the region in 2016.
Scotland has the lowest house price to earnings ratio at 3.4, closely followed by the North at 3.5.
Andrew Harvey, Nationwide’s senior economist, said: “One of the consequences of high house prices relative to earnings is that it makes raising a deposit a significant challenge for prospective first-time buyers. House price growth has exceeded earnings growth over the past year and the ratio of house prices to average earnings has increased to a record high.
“The cost of servicing a typical mortgage as a share of take-home pay is now above its long-run average in the majority of UK regions. By contrast, pre-pandemic, this was only the case in London.”
Harvey added that a significant proportion of first-time buyers relied on help from friends and family or an inheritance to help raise a deposit.
In 2019/20, around a third of first-time buyers had some help raising a deposit, either in the form of a gift or loan from family or a friend or through inheritance – up from 27 per cent 25 years ago.
Nationwide modelled the impact of upcoming mortgage rate rises on first-time buyer initial mortgage payments, assuming an 80 per cent LTV mortgage over a 25-year term.
A 0.4 per cent increase in rates would increase initial mortgage payments by £34 a month. This represents a modest rise in mortgage payments relative to take-home pay from the current level of 31 per cent to 32 per cent.
A 0.9 per cent increase in rates would increase initial mortgage payments by £79 a month, from current levels,, representing 34 per cent of take-home pay.