UK house prices: most and least affordable housing areas - Nationwide Building Society findings explained

The UK housing market is set for a fall in 2023 with mortgage rates likely to rocket for more than a million households amid continuing cost of living pressure

With the cost of living eating into personal finances and the possibility of a recession putting jobs at risk, it is perhaps unsurprising that house prices are falling - albeit from 2022’s record highs.

While high inflation has hampered people’s purchasing power, record interest rates are set to create issues for the 1.4 million homeowners whose fixed-rate mortgage deals are set to come to an end this year. At the same time, wages are not keeping pace with inflation.

The situation was exacerbated by the Liz Truss mini budget in September - an event that not only cost Truss her job, but has added hundreds of pounds to monthly mortgage repayments. Now, new research by Nationwide Building Society has found that it is this rise in mortgage servicing costs that is providing the biggest barrier to potential homebuyers.

The lender’s analysis of official house price and earnings data has found that average first time buyer mortgage repayments (for an 80% loan-to-value mortgage at current rates) are now 39% of their take-home pay packets - the highest level since 2007, and more than 10 percentage points higher than five years ago.

So, what else has Nationwide found - and where are the most and least affordable areas for UK first time buyers?

Buying a house has got much harder for first time buyers over the last 12 months, according to Nationwide analysis (image: Adobe)

What did Nationwide’s research find?

Nationwide’s Affordability Report has found that first time buyers face major affordability hurdles in the form of high mortgage rates and deposit requirements.

The lender found that whilst the financial chaos of the last few months of 2022 has calmed, mortgage rates “are taking longer to normalise” with only “little” scope for affordability to improve in 2023.

“There is some scope for affordability to improve a little in the year ahead. Longer-term interest rates, which underpin mortgage pricing, have fallen back towards the levels prevailing before the mini Budget,” said Nationwide senior economist Andrew Harvey.

“If sustained, this should feed through to mortgage rates and improve the affordability position for potential buyers, albeit modestly, as will solid rates of income growth (wage growth is currently running at c.7% in the private sector), especially if combined with weak or negative house price growth.”

But Mr Harvey added that saving up to get a sufficient deposit together will remain an issue “in the near term”.

“In recent quarters, strong wage growth and a small fall in house prices (which fell c2.5% between August and December 2022) has led to a modest fall in the house price to earnings ratio (HPER). But this has done little to improve the situation, as it follows several years when house price growth outpaced earnings by a wide margin,” he said.

“For example, between the start of the pandemic and the end of 2022, house prices increased by 19%, while incomes rose by a much more modest 9%. At the end of 2022, the UK first time buyer house price to earnings ratio stood at 5.6, the same level as at the end of 2021.

“This in turn means that a 20% deposit on a typical first time buyer home is now equivalent to 112% of the pre-tax income of a typical full-time employee, a similar level to a year ago, and only modestly below the all-time high of 117% recorded earlier in 2022.”

According to the ONS, 1.4 million will see their fixed-rate deal expire in 2023 (image: Adobe)

It has left more than a third of first time buyers relying on the so-called ‘bank of mum and dad’ or their inheritance to get onto the property ladder. And the situation is only being exacerbated by the cost of living crisis.

Andrew Harvey said: “The cost of living is set to outpace earnings growth by a significant margin again this year, while labour market conditions are widely expected to weaken (albeit from a robust starting position).

“Moreover, rents have also been rising at their strongest pace on record (on data extending back to 2005 for England), which will be a further drag for those currently renting who are looking to buy a home (especially since they also tend to spend a larger share of their income on housing costs than owners with a mortgage).”

Where are the most affordable housing areas?

Nationwide’s research makes for gloomy reading, as it shows that all regions experienced a “deterioration in affordability” compared to 2021. The areas where this situation is at its worst are in London and the South East and South West of England.

But even those parts of Great Britain where properties are the most affordable (Scotland and the North) have seen mortgage repayments as a share of net pay climb to their highest level in “over a decade”.

Inverclyde is the most affordable area in the UK for first time buyers (image: Adobe)

While getting on the housing ladder is a major challenge in most areas of England, Wales and Scotland, there are some places where house prices to earnings compare relatively favourably for the average first time buyer (adjusted for each nation and region).

Nationwide has worked out where these places are by taking house price data from the Land Registry and earnings data from the Office for National Statistics. It has then broken the data down into regions, so that it is measuring local house prices in relation to average earnings (HPER) for first time buyers in that area. These local authority areas are where they found property to be most attainable:

  1. Inverclyde (includes Greenock): HPER 2.6
  2. Burnley: 3.1
  3. County Durham: 3.1
  4. Blaenau Gwent (includes Ebbw Vale): 3.8
  5. Stoke-on-Trent: 3.8
  6. North East Lincolnshire (includes Grimsby and Immingham): 3.9
  7. Bolsover: 4.4
  8. Great Yarmouth: 5.4
  9. Swindon: 5.4
  10. Southampton: 5.9
  11. East Hertfordshire (includes Hertford and Bishop’s Stortford): 6.3
  12. Bromley: 7.4

Where are the least affordable housing areas?

At the other end of the scale, many areas remain off limits to all but the highest earning first time buyers in that particular region. These are:

  1. Westminster: HPER 15.6
  2. Oxford: 10.4
  3. Hertsmere: 10.4
  4. South Hams (includes Ivybridge): 9.8
  5. Cambridge: 9.6
  6. Ryedale (includes Malton): 7.9
  7. Rutland: 7.3
  8. Stratford-on-Avon: 7.1
  9. South Lakeland (includes Kendal, Ulverston & Kirkby Lonsdale): 7.1
  10. Vale of Glamorgan (includes Barry and Penarth): 6.8
  11. Trafford (includes Altrincham and Sale): 6.8
  12. Edinburgh: 6.2

Where is housing becoming more affordable?

Nationwide has also looked at which areas have seen the biggest increases in affordability over the past 12 months. First time buyers are likely to be enjoying greater luck in these local authority areas:

  1. Tewkesbury: HPER 5.9 (-0.9 percentage points compared to 2021)
  2. Three Rivers (includes Rickmansworth): 8.8 (-0.9)
  3. Brent: 10.2 (-0.8)
  4. Melton (includes Melton Mowbray): 6.5 (-0.8)
  5. Colchester: 6.2 (-0.3)
  6. Northumberland (includes Hexham, Morpeth, Berwick and Alnwick): 3.9 (-0.3)
  7. Pendle (includes Nelson): 3.5 (-0.3)
  8. Aberdeen: 3.1 (-0.3)
  9. Staffs Moorlands (includes Leek and Cheadle): 4.8 (-0.3)
  10. Calderdale (includes Halifax and Brighouse): 4.2 (-0.1)
  11. Conwy: 5.2 (-0.1)