London homes slightly more affordable, but still only in reach for top 10% of earners

London homes became marginally more affordable after a year of weak house price growth, with the capital seeing the biggest narrowing in the house price to earnings ratio in the country.

However, the city remained by far the least affordable region in the country, with average house prices still eight times earnings, new research from Nationwide found. By contrast, homes in Scotland cost just three times average earnings.

The research showed that in order to buy in London the typical buyer would have to be in the top 10 per cent of earners, whereas in Scotland someone in the 20th income percentile would be able to buy.

The building society worked this out by looking at the typical first-time buyer property in each region and estimating how much they would need to earn to buy with a 20 per cent deposit and a mortgage four times their income.

The most and least affordable areas in London and South East

The research did offer some good news to despairing Londoners however, pointing out the huge variation in affordability across the capital.

While homes in Kensington & Chelsea typically cost 13.6 times average earnings, in Enfield this figure is 6.2 times, below the citywide average, although still higher than most local authorities in the country.

London commuter belt areas offer better affordability, although in some areas this is thanks to high earnings rather than low house prices. For example the area of Surrey Heath, encompassing towns such as Camberley and Bagshot, has a house price to earnings ratio of 4.8.

Tendring in Essex, the local authority where coastal towns of Clacton-on-Sea and Harwich are has the most affordable housing in the South East, with a house price to earnings ratio of five.

‘Housing affordability remains stretched’

Andrew Harvey, senior economist at Nationwide, said: “There has been a modest improvement in UK housing affordability over the last year, due to earnings growth marginally outpacing house price growth and a slight reduction in average borrowing costs.

“Nonetheless, housing affordability remains stretched by historic standards.”

Mr Harvey explained that a prospective buyer earning the average UK income and buying a typical first-time buyer property with a 20 per cent deposit would now have a monthly mortgage payment of 36 per cent of their take-home pay. The long-run average is 30 per cent of net income.

Although wages have grown slightly faster than house prices this year, UK house prices are still five times the average salary, well above the longterm average of 3.9 times.

Mr Harvey said this meant that saving a deposit was still out of reach for many.

“This is a challenge that has been made worse by the record increase in rents in recent years, which, together with the cost-of-living crisis more generally has hampered the ability of many in the private rented sector to save,” he said.

As a result the heavy reliance of first-time buyers on help from family and friends is hardly surprising with 40 per cent getting some assistance raising a deposit either through gifts, loans or inheritance.

The research found that despite these challenges house prices rose 4.7 per cent in 2024, while mortgage lending returned to 2019 levels, even though typical mortgage rates are now three times higher.

First-time buyers accounted for more than half (54 per cent) of mortgages and was higher than pre-pandemic.

Director of Benham and Reeves, Marc von Grundherr, said: “What you do for a career and where you choose to do it remain the driving factors behind your property purchasing potential, but whilst housing affordability certainly remains an obstacle, it’s far from a deterrent, with over a million homebuyers making their move over the last year alone.

“This is despite the fact that today’s buyers are contending with far higher mortgage rates than they’ve become accustomed to in recent years and, with hopes that the cost of borrowing will ease in 2025, we expect homeownership to remain very much the focus of the nation.”

CEO of Yopa, Verona Frankish, commented: “Housing market affordability remains a significant issue for many and whilst we may be seeing more existing buyers make their move, the number of first-time buyer transactions taking place across England has fallen by 43 per cent on an annual basis, as they struggle to overcome the high cost of getting that first foot on the property ladder.

“Whilst there are a number of schemes aimed at helping first-time buyers onto the ladder, we need to see the government deliver on its promises of building more homes if any meaningful progress is to be made with respect to addressing housing affordability across the nation.”

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