Average house prices are still unaffordable for the typical earner, the UK’s largest building society has said.
Despite wages rising above the rate of inflation in recent months and home prices having fallen since their record highs in the summer of 2022, “housing affordability is still stretched,” Nationwide said.
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A greater proportion of take-home pay goes toward mortgage accounts, in line with the lender’s house price index.
Someone earning the UK average income and looking to buy their first home with a deposit worth 20% of the asking price will face a monthly mortgage bill of 37% of their final payment package.
This is above the long-standing average of 30%.
Mortgages affect
While people typically earn more and home prices are 3% lower than their all-time high two years ago, rising mortgage costs have worsened unaffordability.
Lloyds Banking Group chief executive Charlie Nunn said the era of ultra-low interest rates is over.
With high interest rates – raised to 5.25% by the Bank of England to reduce inflation – came more expensive mortgage costs.
According to Nationwide, the interest rate on a five-year fixed rate deal for a borrower with a 25% deposit was 1.3% at the end of 2021. This has shot up and is now around 4.7 %.
The latest official figures showed base salary grew 6% in the three months to April, while inflation – the rate of price increases – was 2.3% in the same month. But data from living standards think tank the Resolution Foundation says weekly wages have risen only increased by £16 in 14 years when inflation is accounted for.
Compounding the affordability issues is the fact that house prices in the UK have started to rise again and increased by 1.5% last month compared to June 2023.
Less mortgages, more money
There were fewer home purchase transactions last year, Nationwide added.
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The total number of transactions fell by around 15% compared to the pre-pandemic year of 2019.
Higher borrowing costs meant mortgage transactions fell further, by almost 25%.
Cash transactions, however, increased 5% from pre-pandemic levels.
The region with the fastest house price growth was Northern Ireland, with 4.1% in the three months from April to June, while it became 1.8% cheaper to buy a house in East Anglia over the year. according to data from Nationwide.
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