The latest figures released by Nationwide have revealed that UK annual house price growth ended 2017 at 2.6%

Robert Gardner, Nationwide’s Chief Economist, comments: “Annual house price growth ended the year at 2.6%, within the 2-4% range that prevailed throughout 2017. This was in line with our expectations and broadly consistent with the 3- 4% annual rate of increase we expect to prevail over the long term (which is also our estimate for earnings growth in the long run).

However, this marked a modest slowdown from the 4-6% rates of house price growth recorded in 2016. Low mortgage rates and healthy employment growth continued to support demand in 2017, while supply constraints provided support for house prices. However, this was offset by mounting pressure on household incomes, which exerted an increasing drag on consumer confidence as the year progressed.

Saving for a deposit remains hard

Another key aspect of affordability is the deposit required and the time taken to save it. A 20% deposit in London is now in excess of £80,000 (based on the average first time buyer house price). This is around £30,000 higher than a decade ago. In other regions, such as the Midlands and Northern England, deposit requirements are similar to 2007, though it should be noted house prices were at or near their pre-crisis peak at this time.

It is arguably even more challenging to save for a deposit than it was a decade ago, due to falling real earnings (i.e. after taking account of inflation) and lower interest rates for savers. Based on the same incomes used for the earnings percentiles, we have estimated the number of years it would take the ‘typical buyer’ to save a 20% deposit, based on saving 15% of net income (take home pay).

In most regions, it would take around 8 years for the typical buyer (as defined above) to save for a deposit. This rises to nine years in the South East and to nearly ten years in London, even though the prospective typical buyer in the capital is in the top 10% of the income distribution.