Buying a first home in London has become marginally more economical since the pandemic, as the housing affordability crisis spreads to the commuter belt.
The average cost of a first-time buyer home in the capital is now nine times typical earnings, down from the historic peak of 10.2 times in the autumn of 2016.
This means wages have risen against property values, making it easier to service mortgage repayments.
However, London remains the most expensive place to get on the property ladder in the UK, with the average cost a first home now sitting at £429,321, according to new data from the lender Nationwide.
Such high house prices in the capital have pushed more prospective first-time buyers to house- or flat-hunt outside the M25 in what Nationwide describe as the core commuter belt. The quest for space in the pandemic and improved transport links, such as Crossrail from Reading into the capital in record time, has also added to this swell of demand to by within a 30 or 45-minute commuter of the capital.
As a result, the average cost of a first-time buyer home in the commuter belt is now 7.2 times typical earnings. This is the most stretched affordability has been in five years.
“House price growth during the Covid-19 pandemic has not been as strong in London as in other places, we have seen a bit of rebalancing of the capital versus other regions as people shifted location,” says Andrew Harvey, senior economist at Nationwide.
The average cost of a first-time buyer home in the core commuter belt was recorded at £312,551 in the third quarter of the year (July, August, September) up from £283,458 the same time last year.
“There is a behavioural shift underway. Rail improvements and more working-from-home means first-time buyers are willing to look further out even to the likes of Kent and Hampshire and the wider south east,” he adds.
First-time buyer house price
Time it takes to save for a deposit
Affordability ratio (house price to earnings)
Outer Met (including Reading, Watford, Maidstone)
Outer South East (including Portsmouth and Brighton)
It takes 16 years to save for a deposit in London
The slight easing of affordability levels in London is little comfort to cash-poor first-time buyers who can afford to service the mortgage repayments but are unable to amass the 20 per cent deposit needed.
The Nationwide report showed that it would take, on average, nearly 16 years (15.8) for the average first-time buyer to save for a deposit in the capital. This is the highest it has been for five years when the length of time soared to 16 years and nine months, but it is up from 10 years and seven months a decade ago.
This shows the ferocity of the recovery of the London property market in the aftermath of the global financial crisis.
The housing affordability crisis is rippling out into the commuter zone and the wide south east with more new developments springing up in places such as Woking, Maidstone and Watford. The rise in sales and therefore prices in the home counties belt surrounding London have pushed the amount of time it takes to save for a deposit to a new high of 12.4 years.
“Around a third of of first-time buyers had some help raising a deposit, either in the form of a gift or loan from a family or friend through inheritance – up from 27 per cent 25 years ago,” says Harvey.
What will interest rates rises mean for first-time buyers?
Speculation is growing that interest rates will rise soon, with a minor increase in December or the New Year, Harvey continues, in reaction to rising inflation.
“However another winter wave of covid must be a factor too. The Bank of England will surely take into account negative impact this could have on the economy and on confidence, in combination with the squeeze on household finances as the cost of food and fuel go up,” he says.
In the short term Harvey predicts that any small rise in interest rates would have a modest impact on mortgage repayments if any. “It [the first-time buyer lending market] is such a competitive market that lenders might not pass on a rise in the base rate to the borrower,” he adds.
Although shared equity scheme Help to Buy will only run for another 18 months, there are other products emerging in order to help first-time buyers overcome the deposit hurdle. Nationwide has recently launched a product called Deposit Unlock for first-time buyers and home movers which offers a 90 to 95 per cent loan to value with a 10 or five per cent deposit on selected new build homes.
What’s happening to UK house prices?
New figures from Nationwide show that UK house prices have risen 10 per cent in the year to November. This is up slightly from nine per cent in the year to October but down from an annual growth rate of 10 per cent in the 12 months to September.
This takes the average cost of a home in the UK to £252,687.
However, the new variant could temper house price inflation, says Harvey.
“The outlook remains uncertain, where a number of factors suggest the pace of activity may slow. It is unclear what impact the new Omicron variant will have on the wider economy…Even if economic conditions continue to improve, rising interest rates may exert a cooling influence on the market,” he says.