According to the Lloyds Affordability Review, there has also been an improvement in the last year, as the typical property price to income ratio for a first-time buyer was 6.2 times income last year.
This assumes an average first-time buyer property price of £237,518, up 2.4% over the last year, and average incomes have gone up by around 6.2% to £40,021.
The report noted that typical monthly mortgage costs have risen by around 0.1% in the last year to £1,087.
Lloyds said this is due to “lower interest rates offsetting the modest increase in property prices”.
This was calculated assuming an average first-time buyer property price and average interest rate for a five-year fixed rate on a 30-year term with a 10% deposit, which currently stands at 4.5%. This is a drop from 4.7% last year.
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As a percentage of income, average monthly mortgage costs are 32.6%, which is down from 34.6% last year and the lowest figure since 2022.
The report added that many first-time buyers are buying with a partner, family member or friend, with 62% of first-time buyers being joint applicants and using more than one salary.
Amanda Bryden, head of mortgages at Lloyds, said: “Buying your first home is still a big challenge, but things are moving in the right direction. Lower mortgage rates, stronger wages and slower house price growth mean it’s becoming a little easier to get on the ladder – the best it’s been for several years.
“Big national numbers often make the headlines, but the reality is that the housing market can look very different from one town to the next. If you’re searching for your first home, being flexible on location can really help – sometimes moving just a few miles from your preferred area can unlock much better value.”
North/South divide in FTB property price to income ratio
Lloyds said that while property price to income ratios have eased at a national average, there is regional differentiation that highlights a North/South divide.
Looking at England, Greater London, the South East, Eastern England and the South West had the “biggest improvement” in property price to income ratios in the last year, all improving by 0.4 to 9.3 times, 7.3 times, seven times and 6.2 times income respectively.
The bank said this was “driven by modest property price inflation coupled with stronger income growth”, but these regions were still the most expensive in the UK.
The report said the North East of England is the most affordable region for first-time buyers, with a property price to earnings ratio of 3.9 times. This is up slightly from 3.8 last year, as property prices increased by around 10% for first-time buyers.
This is higher than the 7% increase in average income for the area and is the strongest of anywhere in the UK.
Mortgage costs as a percentage of income have remained stable in the North East, at 22%, which compares with 51% in Greater London.
Scotland has a property price to income ratio of four times, unchanged from last year, while in Northern Ireland, the ratio stands at 5.1 times, which is up 0.2 from last year. In Wales, it’s 5.3 times, down 0.1 from last year.
Scotland has the most affordable local areas in Britain, with Inverclyde topping the list with a property price to earnings ratio of 3.4 times.
Kensington and Chelsea is the least affordable local area, with a property price to earnings ratio of 17.7 times.
The Cotswolds saw the biggest improvement in affordability over the last year, with the property price to earnings ratio falling from 12 times in 2024 to 9.6 times this year, attributed to a fall in the value of the average home.
The largest deterioration in affordability was recorded in Staffordshire Moorlands in the West Midlands, with the ratio there increasing from 5.7 times to 6.3 times as a result of rising property prices.
Rental increases come to 5.5% YOY
Looking at rental increases, UK rental costs rose by 5.5% year-on-year to a monthly average of £1,346.
However, the bank said “strong wage growth” meant that as a proportion of income, rental payments have stayed stable at 40%.
Lloyds said renting is on average £259 per month more expensive than typical mortgage costs for first-time buyers.
The report noted that the difference between rent and mortgage costs has increased by 36% over the last year.
The bank said this shows that for those that “can overcome the challenge of raising a deposit, owning a home can often be more affordable than renting”.
