Around 30% of all lending at a loan-to-income (LTI) ratio exceeding 4.5 takes place in London, reflecting the complex challenge faced by many prospective buyers in the capital. This figure highlights how regulatory layering combined with the persistent imbalance of house prices outstripping wage growth has constrained access to mortgage credit. Many buyers now find substantial external financial support, typically from family, essential to secure a property.

The capital’s elevated house prices have created a necessity for larger deposits, particularly affecting first-time buyers. In 2023, more than half of these first-time purchasers – reaching an 11-year high of 57% – relied on family help to complete their transactions. This support amounted to £9.4 billion last year, and forecasts suggest similar levels of family assistance will persist annually through 2026. High mortgage interest rates, which in mid-2024 saw average rates between 5.66% and 6.08% for loans with 90-95% loan-to-value (LTV), further complicate affordability. Alongside these pressures, soaring rents—London’s average reaching over £2,100 per month—have hindered the ability of many to save for deposits, deepening the financial barrier to homeownership.

London’s housing market has shown signs of stagnation, with nominal house price growth of just 13% over the past decade, equating to a real-terms decline. This stagnation occurs despite record high population levels and surging rental demand. Contributing factors include high borrowing costs, expensive stamp duties, restrictive mortgage lending rules, and diminishing investment appeal due to lower rental yields. These dynamics have resulted in low transaction volumes, inefficiently used housing stock, reduced labour mobility, and fewer new homes being built. First-time buyers particularly bear the brunt, facing stringent lending criteria and significant deposit requirements amid these unfavourable conditions.

The broader picture of housing affordability in England remains starkly challenging. In 2023, the average English property required 8.6 years of household income to purchase, a marginal increase from the previous year’s 8.4 years. London stands out with the harshest affordability crisis; average homes are beyond the reach of all income deciles, with low-income households theoretically needing nearly 35 years of income to buy a typical property. Northern regions such as the north east and Yorkshire offer relatively superior affordability, though the government has acknowledged the urgent need for radical measures to tackle housing supply and affordability. Prime Minister Keir Starmer has called for the building of 1.5 million new homes in England over the next five years, aiming to alleviate the supply shortage and ease pressure on prices.

Generational disparities in home ownership and mortgage indebtedness have become increasingly pronounced over the past decade. Older generations, particularly baby boomers, have significantly reduced mortgage debt by paying off their loans, resulting in a decline in the overall loan-to-value ratio of UK housing from 23.5% in 2014 to 19.4% in 2024. Meanwhile, younger groups, such as millennials and Gen Z, face barriers to entry marked by high deposit demands and limited mortgage availability. The total value of UK homes has surpassed £9 trillion, with outright homeowners, dominantly older cohorts, expanding their share of national housing wealth. The number of mortgages held by owner-occupiers has decreased from 9.5 million to 8.7 million over the same period, underscoring the challenges of gaining a foothold in the property market.

The government has proposed reforms aimed at boosting homeownership, including prioritising first-time buyers in new developments and introducing schemes to lower deposit requirements. However, these efforts must contend with persistent macroeconomic factors, including mortgage regulation that restricts lending relative to income and property values, alongside rising interest rates since 2022 that have tightened credit conditions and temporarily dampened prices. While the housing market saw some price recovery in 2024, stark regional disparities continue to define the landscape, with London and the South East considerably more expensive than other parts of the country.

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Source: Noah Wire Services