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 are up 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.
It should be noted that 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%.
“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,” said Amanda Bryden (Head of Mortgages at Lloyds).
“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,” she said.
Rents 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.
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