"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"
- Andrew Harvey - Nationwide
The latest report on housing affordability from Nationwide has revealed that there has been a gradual improvement largely thanks to the strength of earnings compared to house prices. Nationwide research found that affordability is most stretched in the capital and across the south of England, with the North of England & Scotland the most affordable.
“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, explained Andrew Harvey, Senior Economist at Nationwide, "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 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.
“Therefore, it’s not surprising that a significant proportion of first-time buyers have to draw on help from friends and family to raise a deposit. In 2023/24, around 40% 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.
“Despite these affordability challenges, mortgage market activity and house prices proved surprisingly resilient in 2024. Annual house price growth ended the year at 4.7%, a marked improvement from the small declines seen at the start of 2024. The number of mortgage approvals returned to 2019 levels, despite typical mortgage rates being around three times higher.
"Perhaps even more remarkably, first-time buyers’ share of house purchase mortgages was actually higher in 2024 (54%) than it was pre-pandemic (51%). Looking ahead, providing the economy recovers steadily, as we expect, the underlying pace of housing market activity is likely to continue to strengthen gradually as affordability constraints ease through a combination of modestly lower interest rates and earnings outpacing house price growth.
Regional variations in affordability
While 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, there remain differences in affordability around the country.
“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," explains Andrew, "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.
“House price to earnings ratios remain broadly similar to a year ago across the UK, with London continuing to have the highest house price to earnings ratio at 8.0 and Scotland the lowest at 3.0."
Local affordability
“It is important to recognise there is also considerable variation in affordability within regions. Our local affordability metrics, which use house price and earnings data from the Land Registry and ONS, give the most comprehensive view at a local level.
“London continues to have the greatest gap between the most and least affordable boroughs by a considerable margin. Meanwhile, the North has the smallest difference between local authority house price-earnings ratios (HPERs).
“Kensington and Chelsea is the least affordable local authority in London and, by extension, Great Britain, with an HPER of 13.6.
“Chichester in West Sussex is the least affordable area in the Outer South East region, with house prices 8.5 times average earnings. Meanwhile, in the Outer Metropolitan region, Three Rivers in Hertfordshire, which includes the popular commuter town of Rickmansworth, is the least affordable local authority.
“In the South West, Bath & North East Somerset is a house price hotspot, but also considerably more expensive than other parts of the region, making it the least affordable area. It is a similar story in Cambridge, where average FTB house prices are much higher than in parts of East Anglia. York is another sought-after city, but with an HPER of 6.3, it is the least affordable location within Yorkshire and the Humber.
“Wychavon in Worcestershire is the least affordable part of the West Midlands and includes Evesham, Droitwich Spa and parts of the Cotswolds. Meanwhile, in the East Midlands, Derbyshire Dales is one of the highest-priced areas, with much of it sitting within the Peak District National Park, including towns such as Matlock, Ashbourne and Bakewell. Continuing the theme, Westmorland & Furness, which takes in significant swathes of the Lake District National Park, is the least affordable area in the North.
“In Wales and Scotland, the capital cities are the least affordable places, with Cardiff & Edinburgh having FTB HPERs of 5.6 and 5.4 respectively.
Industry reactions
Tom Bill, head of UK residential research at Knight Frank commented, “Affordability has come into sharper focus as mortgage rates climb, which we expect to produce stronger house price growth in lower-value markets. Underpinned by the fact people are still adjusting their work/life balance since Covid, demand will gravitate away from large metropolitan locations and into areas that have traditionally been less in demand, meaning the gap between London and the rest of the country should narrow rather than widen.”
Toby Leek, NAEA Propertymark President, said, “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 per cent. 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.”
Matt Thompson, head of sales at Chestertons, said, “As one of the world capitals and leading financial hubs, London sees steady demand from domestic and corporate buyers, property investors and international students. This level of demand often outweighs the number of homes for sale which contributes to the majority of properties in the capital either holding their value or seeing a price increase. If interest rates go down further this year, London’s property market will likely see additional buyers starting their search which will inevitably fuel a more competitive market compared to last year.”
Director of Benham and Reeves, Marc von Grundherr, commented, “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.”
CEO of Yopa, Verona Frankish, commented, “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.”
