UK homebuying struggle: Deposits hit 105% of average annual income


According to mortgage provider Nationwide, the price of an average house in the UK rose further in January, at the fastest pace since October.


According to the latest data from mortgage lender Nationwide Building Society, British house prices rose 0.7% month-on-month in January, with an annual decline of just 0.2%.

“UK house prices increased by 0.7% in January, after accounting for seasonal effects. 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 result since then. January 2023,” said chief national economist Robert Gardner commenting on the data.

According to Gardner, the trajectory of mortgage rates is crucial to the housing market and poses a challenge in 2023 for people looking to buy a home.

“If average mortgage rates were to fall to 4%, this would ease the burden of mortgage payments to 34% of net wages (assuming home prices and earnings remain unchanged),” he said.

“However, all else being equal, mortgage rates of 3% (still well above the lows seen in the wake of the pandemic) would be needed to bring this measure of affordability back toward its long-term average.”

The current average house price remains £16,000 (€19,000) below the peak of £273,750 (€320,400) recorded in August 2022, a period marked by the impact of rising interest rates on the property market.

However, prices continue to be around £42,000 (€49,000) higher than those seen in January 2020, reflecting rapid expansion during the pandemic as record-low interest rates boosted demand, as reported by the Financial Times.

Saving for a deposit remains a significant challenge for homebuyers, Nationwide said. It is estimated that a 20% deposit for a typical first-time buyer’s home is now equivalent to around 105% of the average annual gross income.

Likewise, people looking for rental properties are faced with higher prices due to the high level of competition.

In the final quarter of 2023, average advertised rents outside London in the UK reached £1,280 (€1,500) per month, marking a 9.2% increase on the previous year. This represented the lowest annual growth rate seen since 2021, property site Rightmove reported.

In England, those on the average household income spend around 26% on average-priced rental homes. In Wales it is 23% and in Northern Ireland it is 25%.

Rightmove’s forecast for next year suggests average rents will rise by 5% outside London and 3% in the capital.

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