A combination of lower interest rates, higher incomes and limited property price growth has improved first-time buyer affordability over the last year, according to new research from Lloyds.
At a national level, the typical first-time buyer property price is now 5.9 times average earnings, down from 6.2 last year. This is based on a typical first property costing £237,518, up 2.4% over the last year, while average incomes rose by 6.2% to £40,021.
The last time the property price to income ratio for first-time buyers sat below 6.0 was almost 10 years ago, at the end of 2015 (also 5.9).
Typical monthly mortgage costs have risen by just 0.1% for first-time buyers over the last year to £1,087. This is a result of lower interest rates offsetting the modest increase in property prices.
Calculations are based on typical first-time buyer property prices and the average interest rate for a five-year fixed deal – with a 30-year term and 10% deposit – which has fallen from 4.7% to 4.5% over the last year.
As a proportion of income, average monthly mortgage costs have fallen from 34.6% to 32.6%. That’s the lowest the figure has been since the middle of 2022 (32.4%), prior to the rapid increase in interest rates which occurred later that year.
Rental costs continue to rise
UK rental costs have increased sharply over the last year, rising by 5.5% to a monthly average of £1,346. However, due to strong wage growth, rental payments as a percentage of income have remained stable at around 40%.
Renting is, on average, £259 per month more expensive than typical mortgage costs for first-time buyers, a difference that’s increased by over a third (36%) over the last year.
These figures emphasise that for those who can overcome the challenge of raising a deposit, owning a home can often be more affordable than renting.
First-time buyers doubling-up
The borrowing power of many first-time buyers is often boosted by purchasing with a partner, family member or friend. A significant majority (62%) are now joint applicants and able to call on more than one salary.
According to UK Finance, the average household income for a first-time buyer mortgage application last year stood at just over £65,000 which puts the equivalent property price to household income ratio at around 3.7, and the mortgage cost as a percentage of joint income at closer to 20%.
Regional comparison shows North/South divide
As the UK’s property price to earnings ratio has eased at a national level – making homes more affordable on average – it’s a similar story for first-time buyers in almost all the individual nations and regions of the UK.
In England, Greater London (9.3), the South East (7.3), Eastern England (7.0) and the South West (6.2) saw the biggest improvement in the property price to income ratio for first-time buyers over the last year, falling by 0.4 in each case. This was driven by modest property price inflation coupled with stronger income growth.
However, these four regions remain the most expensive in the UK to buy a property.
Conversely, the North East of England is the most affordable region for first-time buyers, with a property price to earnings ratio of 3.9. This is up slightly from 3.8 last year, as property prices in the North East rose by around 10% for first-time buyers, outpacing a 7% increase in average income for the area (the strongest of anywhere in the UK).
Mortgage costs as a percentage of income have remained static in the North East, at 22%. For context, this compares with 51% in Greater London.
Scotland is the next most affordable area for those aiming to step onto the ladder, with a property price to income ratio of 4.0, unchanged from last year. In Northern Ireland the ratio stands at 5.1 which is up 0.2 from last year. And in Wales it’s 5.3, down 0.1 from last year.
Inverclyde to Chelsea: where homes are most and least affordable
Across the housing market (including existing homeowners as well as first-time buyers), the UK property price to earnings ratio has fallen from 7.8 to 7.5 over the last year. This is based on a typical property costing £298,521, up 1.9% over the last year, while average incomes are up by 6.2% to £40,021.
Scotland accounts for many of the most affordable local areas in Britain. Inverclyde on the west coast tops the list with a property price to earnings ratio of 3.4. It’s followed by Kingston upon Hull in Yorkshire and the Humber, with a ratio of 3.5.
Kensington and Chelsea is the least affordable local area, with a property price to earnings ratio of 17.7. Next comes Elmsbridge in the South East at 16.6.
The Cotswolds saw the biggest improvement in affordability over the last year, with the property price to earnings ratio falling from 12.0 in 2024 to 9.6 this year, driven by a fall in the value of the average home.
The biggest deterioration in affordability was recorded in Staffordshire Moorlands in the West Midlands, with the ratio there increasing from 5.7 to 6.3 as a result of rising property prices.
Amanda Bryden, head of mortgages at Lloyds, said: “Buying your first home is still a big challenge, but things are moving in the right direction. Lower mortgage rates, stronger wages and slower house price growth mean it’s becoming a little easier to get on the ladder – the best it’s been for several years.
“Big national numbers often make the headlines, but the reality is that the housing market can look very different from one town to the next. If you’re searching for your first home, being flexible on location can really help – sometimes moving just a few miles from your preferred area can unlock much better value.”
