In January, UK house prices saw a modest increase, continuing to exert pressure on buyers grappling with affordability issues.
According to the Nationwide Building Society, the Nationwide House Price Index for January rose by 4.1% annually, a decrease from December’s two-and-a-half-year peak of 4.7%, and slightly below analyst predictions of 4.3%.
On a month-to-month basis, house prices inched up by 0.1% in January, a drop from the 0.7% increase recorded in December and falling short of the expected 0.3% rise.
The main factors constraining buyer activity include persistently high interest rates and substantial deposit requirements, which are particularly challenging for first-time buyers attempting to amass sufficient savings.
The exacerbating effects of escalating rents and the ongoing cost of living crisis are also impacting the market.
Robert Gardner, Nationwide’s chief economist, remarked on the resilience of the housing market despite these enduring affordability challenges.
“Affordability remains stretched by historic standards, despite a modest improvement over the last year,” he noted in the company’s house price index report.
Gardner elaborated on the financial burdens facing prospective buyers: “A buyer earning the average UK income and purchasing a typical first-time buyer property with a 20% deposit would face monthly mortgage payments that consume 36% of their take-home pay—significantly higher than the long-term average of 30%.”
He also pointed out that house prices continue to be high relative to average earnings, with the ratio of first-time buyer house prices to earnings standing at 5.0 at the end of 2024, which is considerably above the historical average of 3.9.
Gardner highlighted that around 40% of first-time buyers last year needed financial assistance from family and friends, including loans, gifts, and inheritances, to gather enough for a deposit.
Despite these hurdles, the overall homeownership rate has remained relatively unchanged over recent years, stable at 65% in 2024, as reported by the latest English Housing Survey conducted by the Ministry of Housing, Communities & Local Government (MHCLG).
