Nationwide – House Price Index, Affordability in the Market

According to Nationwide's latest House Price Index, and with Zoopla’s announcement a few days ago in their report, there has been a rebound in the housing market, with UK house prices experiencing a month-on-month increase of 0.7% in January. Additionally, there has been a further recovery in the annual rate of change with prices down just 0.2% compared with a year ago.

*Seasonally adjusted figure (note that monthly % changes are revised when seasonal adjustment factors are re-estimated)

Robert Gardner, Nationwide’s Chief Economist, comments on the figures - “This resulted in an improvement in the annual rate of house price growth from -1.8% in December to -0.2% in January, the strongest outturn since January 2023.”

Affordability easing?

There are promising indications of improved affordability for potential homebuyers, as mortgage rates show a downward trend and investors projecting the Bank of England to gradually reduce the Base Rate over the coming years. These trends have contributed to a decline in swap rates, which serve as a fundamental element for lenders in determining mortgage interest rates.

However, recent weeks have seen a slight uptick in swap rates attributed to inflation. Robert Gardner offers a word of caution, stating, "the interest rate outlook remains highly uncertain."

Nationwide believe the direction of the housing market hinges on how mortgage rates evolve. Affordability emerged as a prominent constraint in 2023, with Nationwide's data revealing that the average first-time buyer, with a 20% deposit, allocated 38% of their monthly take home earnings to mortgage payments, well above the long-term average of 30%.

If the current trend continues, and mortgage rates decrease to 4% it will reduce monthly payments to 34% of earnings. However, to align mortgage payments with the long-term average of 30% of earnings, rates would need to drop further to 3%.

Deposits remain a limiting factor 

Raising a sufficient deposit remains one of the leading challenges in property purchasing. According to Nationwide, the 20% deposit required for an average first-time buyer amounts to approximately 105% of their average annual gross income, although this figure has decreased from the peak of 116% observed in 2022. This challenge is reflected in the price-to-earnings ratio, which stood at 5.2x by the end of 2023, significantly higher than the historical average of 3.9x.

Nationwide attributes the prevalence of high deposit requirements to the substantial costs associated with entering the property market. Consequently, nearly half of first-time buyers in 2022/23 received assistance from family and friends to raise their deposit, compared to only 27% in the mid-1990s.

Regional affordability

Nationwide have seen a considerable discrepancy across the country with affordability, especially in London, the South and the East of England, having more constraints, while the North of England and Scotland remain the most affordable regions.  

According to the bank's data, in London, the average income of a solo first-time buyer surpasses the average income of a working adult in the capital by approximately 55%. This highlights a notable gap between aspiring homeowners and those who can afford to purchase property.

Similarly, in the South and East of England, first-time buyers face challenges, with a 25% disparity in earnings compared to the average earner. However, affordability is relatively better in regions like the North East of England and Yorkshire and the Humber, where the average income of first-time buyers aligns more closely with the regional average earner.

In contrast, Northern Ireland and Scotland present a different scenario, with the average income for first-time buyers falling below the regional average.

Whether you are a first-time buyer or looking to find your next home important to receive advice on securing the best mortgage for you. Contact us or call 01628 564631 for a consultation with one of our team members.

The information contained within was correct at the time of publication but is subject to change.

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Source: Nationwide – HPI January 2024