Bank of Mum and Dad Remains Crucial for First-Time Buyers

“With [house] price growth well below the rate of earnings growth and a steady decline in mortgage rates, affordability constraints have eased somewhat over the past year, helping to underpin buyer demand,” Andrew Harvey, senior economist at Nationwide, said. Nationwide calculated that the typical first-time buyer house price now equates to 4.7 times the average annual salary of someone taking their first step on the property ladder, down from almost six times during the post-lockdown “race for space” and below the 20-year average of 4.9 times. The house price to earnings ratio for first-time buyers has not been this low since 2013. Back in the early Nineties, the ratio dipped to just above 2 times the average salary. With mortgage rates having come down over the past 12 months, the average first-time buyer is spending about 32 per cent of their take-home pay on mortgage repayments, compared to about 38 per cent in 2022 and broadly in line with the long-run average of 30 per cent. However, even with better affordability, Nationwide said saving for a large enough deposit remains a challenge. If a would-be first-time buyer in full-time work saved 10 per cent of their take-home pay every month — around £320 — it would take them six years to build up £23,000, or 10 per cent of the typical first-time buyer house price. For those in the southeast of England, where house prices are highest, saving for a deposit can be even harder. In London, for example, first-time buyers typically need a deposit of close to £45,000, which would take nine years to amass. “A significant proportion of first-time buyers still have to draw on help from friends and family,” Harvey said. Nationwide’s data shows that “over a third of first-time buyers” had some assistance raising a deposit last year, whether that be a gift or loan from their family or through an inheritance. Regionally, the path to home ownership for those in the south remains much trickier than for people wanting to buy further north. First-time buyer house prices in Scotland and northeast England work out to less than three times the average salary, while in the southeast and southwest that figure is above five times. In London, the first-time buyer house price to earnings ratio is above seven, although that has come down in each of the past two years now.