Nationwide, the UK’s largest building society, has reported that average house prices are still out of reach for the typical earner. Despite recent wage increases and a decrease in house prices from their record high in summer 2022, the affordability of housing remains stretched.
According to Nationwide’s house price index, a greater proportion of take-home pay is now going towards mortgage payments. For someone earning the average UK income and looking to purchase their first home with a 20% deposit, their monthly mortgage bill would equate to 37% of their end pay packet. This is higher than the long-standing average of 30%.
The main factor contributing to this unaffordability is the rising cost of mortgages. With the Bank of England raising interest rates to 5.25% in an effort to bring down inflation, mortgage costs have become more expensive. In late 2021, the interest rate on a five-year fixed-rate mortgage for a borrower with a 25% deposit was 1.3%. However, this has now increased to around 4.7%.
While wage growth has outpaced inflation in recent months and house prices are 3% lower than their peak two years ago, the rise in mortgage costs has exacerbated the issue of unaffordability.
Data from the Resolution Foundation, a living-standards thinktank, further highlights the struggle for potential homebuyers. Despite a 6% increase in basic pay in the three months to April and inflation at 2.3% in the same month, the foundation found that weekly wages have only increased by £16 in the past 14 years when adjusted for inflation.
Compounding the problem is the fact that UK house prices have started to rise again, with a 1.5% increase last month compared to June 2023.
Nationwide also reported a decrease in house-buying transactions over the past year, with a roughly 15% decline compared to 2019. Transactions involving a mortgage have decreased even further, by nearly 25%. On the other hand, cash transactions have seen a 5% increase from pre-pandemic levels.
The Bank of England released figures on Monday morning showing a continued decrease in mortgage approvals. In May, there were 60,000 approvals, down from 60,800 in April. Additionally, the amount borrowed for home purchases decreased from £2.2bn in April to £1.2bn in May.
The same data also revealed an increase in personal lending, such as credit card debt and personal loans, indicating a rise in consumer demand.
Regionally, Northern Ireland saw the fastest house price growth at 4.1% over the three months from April to June. In contrast, it became 1.8% cheaper to buy a house in East Anglia over the course of the year, according to Nationwide’s figures.