House prices rise to 5.5x annual salary for first-time buyers

New figures from Nationwide show that first-time buyers in the UK need 5.5 times their annual pay to get on the property ladder. Here’s how they can cope.

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As house prices have surged over the last year, first-time buyers have found it hard to get on the property ladder. New data from Nationwide shows that the average first-time buyer now needs to cough up five and a half times their typical annual pay to get on the property ladder.

So, what can first-time buyers do to cope? Let’s take a look.

[top_pitch]

What’s the current cost of getting on the property ladder for first-time buyers?

According to Nationwide, a 20% deposit on a home now equates to 110% of the pre-tax income of a typical full-time employee.

As of the third quarter of 2021, the UK first-time buyer house price to earnings ratio stood at 5.5. This beats the previous record of 5.4, which was reached in 2007. It’s also well above the long-run average of 3.8.

In London, the first-time buyer house price to earnings ratio is even higher at 9.0. However, this remains below the record high of 10.2 seen in 2016.

Region-wise, Scotland has the lowest house price to earnings ratio at 3.4, followed by North England at 3.5. Here’s how other regions fare.

  • Yorkshire and the Humber – 4.0
  • North West – 4.2
  • East Midlands – 5.0
  • West Midlands – 5.0
  • East Anglia – 5.6
  • Wales – 4.6
  • Northern Ireland – 4.5
  • Outer South East – 6.5
  • Outer Metropolitan – 7.2

[middle_pitch]

What schemes are available to help first-time buyers cope?

If you are a first-time buyer hoping to get on the property ladder soon, the new stats from Nationwide are undoubtedly discouraging. As Andrew Harvey, senior economist at Nationwide, explains: “One of the consequences of high house prices relative to earnings is that it makes raising a deposit a significant challenge for prospective first-time buyers.”

However, there are several government incentives and schemes out there to help first-time buyers get on the property ladder. Here are a few that you can check out.

1. Mortgage guarantee scheme

Low deposit mortgages are back on the market thanks to the government’s mortgage guarantee scheme, which was introduced during the March budget. Under this scheme, you can get a mortgage with as little as a 5% deposit.

2. Help to Buy: Equity loan scheme

This is another government scheme available to first-time buyers hoping to get onto the property ladder with a small deposit. Here, the government will give you an equity loan worth up to 20% of a property’s value (40% in London) after you’ve come up with a 5% deposit. Note that the loan is in addition to a normal mortgage. Help to Buy loans are only available for new-build properties.

3. Lifetime ISA

A Lifetime ISA is a tax-free savings account from the government that can help first-time buyers accelerate their home buying journey. It’s open to people aged between 18 and 39. You can save up to £4,000 a year in a Lifetime ISA and the government will then add a 25% bonus. Lifetime ISAs can be opened through a bank, building society or investing solutions platform.

4. Shared ownership

The shared ownership scheme allows you to buy a 25% to 75% share in a property. You may even be able to buy a 10% share of some homes.

You will co-own the property with a housing association to whom you will also pay rent on the remaining amount. Since you will only need a mortgage for the share you own, the amount you will need for a deposit will be less than if you were buying the house outright.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be considered so you should consider taking independent financial advice.

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