Affordability improves as first-time buyer activity rises

Nationwide says that improving affordability last year helped more first-time buyers onto the property ladder.

Its latest Housing Affordability Report shows that slower house price growth, rising incomes and lower mortgage costs all played a part.

The building society says price rises have remained well below earnings growth while mortgage rates have continued to fall.

As a result, first-time buyers accounted for a higher share of purchases than the long-run average, with activity around 20% higher than in 2024.

Affordability boosts sales

Andrew Harvey, Nationwide’s senior economist, said: “With price growth well below the rate of earnings growth and a steady decline in mortgage rates, affordability constraints have eased somewhat over the past year, helping to underpin buyer demand.

“Indeed, the first-time buyer share of house purchase activity was above the long run average, supported by easier credit availability, with the share of high loan-to-value lending, with a deposit of 15% or less, reaching its highest level for over a decade.”

He added: “Most regions have seen a slight improvement in their house price to earnings ratios relative to a year ago, with London continuing to have the highest house price to earnings ratio at 7.5 and Scotland the lowest at 2.9.

“These regional variations in affordability have led to some stark differences emerging between those who would like to buy and those that can do so.”

Buyers have larger loans

Nationwide also says that high loan-to-value borrowing also increased, with lending to buyers putting down deposits of 15% or less reaching its strongest level in more than 10 years.

The organisation’s benchmark measure shows a buyer on the average UK income purchasing a typical first-time buyer home with a 20% deposit would face monthly mortgage payments equivalent to 32% of take-home pay.

That’s slightly above the long-term norm of 30%, but far below the 48% peak recorded in 1989.

The report also points to continued improvement in the first-time buyer house price to earnings ratio, now at 4.7 and marginally below its 20-year average.

While this suggests saving for a deposit has become slightly easier, Nationwide warns renters still face significant challenges following sharp rental increases in recent years.

Deposit differences

The house price index also shows that a London buyer needs more than three times the deposit required in the North, with savings times stretching to around nine years compared with roughly four years in northern regions.

As a result, family support remains common and more than a third of first-time buyers in 2024/25 received help through gifts, loans or inheritance.

Looking ahead, Nationwide expects gradual strengthening in housing activity as incomes continue to outpace prices and interest rates edge lower.

Also, mortgage costs take the smallest share of take-home pay among managerial and professional workers, reflecting higher earnings.

Affordability has improved across all job groups since 2024, with the largest gains seen in caring, leisure and service roles following stronger wage growth.

Sales and customer service staff and those in occupations such as labourers, cleaners and couriers face the greatest strain, with mortgage payments absorbing around 50% of average net income.

Property sector reaction

Nathan Emerson, the CEO of Propertymark, said: “While it’s encouraging to see affordability improving and first-time buyer activity picking up, this report underlines that homeownership remains out of reach for many, particularly those on lower and middle incomes.

“The fact that a typical first-time buyer still needs close to six years to save for a 10% deposit shows just how significant the deposit barrier remains, especially in London and the South of England.”

Tom Bill, the head of residential research at Knight Frank, said: “Improved affordability is like a planning system incentive – it’s only positive for the housing market on paper.

“Confidence is the key missing ingredient and although it is recovering after the Budget, the market appears to need a demand-side shot in the arm as the economy struggles to grow and Westminster politics remains volatile.

“We expect low single-digit UK house price growth this year, primarily based on lower mortgage rates.”