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'Upbeat’ start to 2024 for the housing market, says Nationwide

'Upbeat’ start to 2024 for the housing market, says Nationwide
Emma Lunn
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Emma Lunn

The typical UK property cost £257,656 in January 2024, up 0.7% from December (£257,443), according to Nationwide.

Prices are almost stable year-on-year, with latest house price index from Nationwide noting that prices are down 0.2% compared with a year ago, an improvement from December 2023 when prices were 1.8% down year-on-year.

Nationwide also pointed to signs of easing in affordability pressures, with mortgage rates continuing to trend down. This follows a shift in view amongst investors around the future path of the Bank of England base rate, with investors becoming more optimistic that the bank will lower rates in the years ahead.

These shifts are important as this led to a decline in the longer-term interest rates (swap rates) that underpin mortgage pricing around the turn of the year. However, the partial reversal in recent weeks in response to stronger than expected inflation and activity data cautions that the interest rate outlook remains highly uncertain.

Robert Gardner, Nationwide chief economist, said: “How mortgage rates evolve will be crucial, as affordability pressures were the key factor holding back housing market activity in 2023. Indeed, at the end of 2023, a borrower earning the average UK income and buying a typical first-time buyer property with a 20% deposit had a monthly mortgage payment equivalent to 38% of take-home pay – well above the long run average of 30%.

“If average mortgage rates were to trend down to 4%, this would ease the mortgage payments burden to 34% of take-home pay (assuming house prices and earnings are unchanged). However, other things 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 towards its long run average.

Saving a deposit

Raising a deposit also remains a major challenge for those wanting to buy, with a 20% deposit on a typical first-time buyer home equating to about 105% of average annual gross income. This is down from the all-time high of 116% recorded in 2022, but still close to the pre-financial crisis level of 108%.

This reflects that house prices are still very high relative to earnings, with the house price to earnings ratio standing at 5.2 at the end of 2023, well above the long run average of 3.9.

Deposits requirements help explain why the proportion of first-time buyers drawing on help from friends and family or an inheritance to help raise a deposit has increased. In 2022/23, nearly half of first-time buyers had some help raising a deposit, either in the form of a gift or loan from family or friends, or through inheritance – up from 27% in the mid-1990s.

Buying still ‘unaffordable for many’

Anna Clare Harper, CEO of sustainable investment adviser GreenResi, said: “While house price rises are positive for homeowners, there are strong differences between the ‘haves’ and the ‘have nots’ in housing.

“The combination of mortgage interest rates still too high for an average home to be affordable, and limited access to deposits for aspiring homeowners, make owning a home unaffordable for many. House price rises do not help.”

Mark Harris, chief executive of SPF Private Clients, said: “Those in London and the southeast continue to find it difficult to get on the housing ladder and move up it, thanks to the higher cost of housing. First-time buyers are calling upon the Bank of Mum and Dad more than ever.”