First time buyers are facing significant hurdles to raising a deposit as they come up against high prices relative to average earnings.
House price growth has surpassed earnings growth over the past year and the ratio of house prices to earrings has hit a record high, the Nationwide House Price Index set out.
A 20 per cent deposit equivalent to 110 per cent average income, up from 102 per cent, one year ago.
In the third quarter of this year, the UK first time buyer house price to earnings ratio was 5.5, above the previous high of 5.4 in 2007, and well above the long run average of 3.8.
London has continued to have the highest house price to earnings ratio at 9 – however, this is below its record high of 10.2 in 2016.
Many first time buyers were aided by friends and family or an inheritance to help raise a deposit, with around a third having some help in 2019/20.
This was a 27 per cent increase compared to 25 years ago, when fewer first time buyers used gifts, loans or inheritance to get tehri foot onto the property ladder.
“A significant proportion of first time buyers draw on help from friends and family or an inheritance to help raise a deposit, as illustrated in the chart (see attached).
“House prices have continued to rise more quickly than earnings in recent quarters, which means affordability is becoming more stretched,” Andrew Harvey, Nationwide senior economist, said.
He added: “Due to the historically low level of interest rates, the comparative cost of servicing a typical mortgage is still well below the levels recorded in the run up to the financial crisis. However, even on this measure, affordability is becoming more challenging.”
Director of Benham and Reeves, Marc von Grundherr, said despite “a respectable level of wage growth in recent years,” earnings were not earning “to match the might” of the UK housing market.
He added: “At the same time, record low interest rates over such a prolonged period of time have been great for those taking their first step on the property ladder with a mortgage, but they’ve been terrible for those attempting to save.
“Even in London, where house price growth has been fairly muted in comparison to much of the UK and wages are more robust, the barrier to homeownership is still incredibly high.”