The UK’s house price-to-income ratio has fallen to an 11-year low. However, higher income rates and saving for a deposit still remain big hurdles for many.

The average UK home now costs the equivalent of 7.3 times average earnings, down from 7.6 a year ago, according to new research from Lloyds Banking Group in partnership with S&P Global. This has brought the ratio to its lowest level since 2015, a positive sign for those in the market for a new home.

For first-time buyers, this gap is even narrower, with homes now costing less than six times earnings, falling from 6.1 to 5.9. This is an encouraging sign for people looking to buy a home, according to Andrew Asaam, mortgages director at Lloyds.

‘Wages have continued to rise, while house prices have remained relatively stable, helping to narrow the gap between earnings and house prices,’ he says.

Home buyers still face challenges

However, while this is a positive step for potential homebuyers, other financial hurdles are still making things challenging for buyers.

‘Affordability remains stretched for many households,’ says Asaam. ‘Mortgage rates are higher than they were a year ago and saving for a deposit continues to be one of the biggest barriers facing first-time buyers.’

These higher interest rates mean average monthly mortgage repayments have now risen from £1,100 to £1,157, and a deposit remains a key challenge, with a typical first-time buyer still needing to save almost £24,000 for a 10% deposit.

However, Asaam says buyers have every reason to stay positive – and reminds them that help is available through mortgage products on offer.

‘Buyers may have more options than they realise, including mortgages designed for those with smaller deposits,’ he says. ‘While these won’t be right for everyone, they can help some buyers take their first step onto the housing ladder sooner.’

Location is key to affordability

Asaam also says that location is key when prioritising affordability – although even some of Britain’s wealthiest regions have seen improvements in affordability, in terms of house price to income ratio. For example, the South East recorded the largest improvement, with the average home now costing 9.1 times earnings, down from 9.7 a year ago, while Greater London fell from 10.9 to 10.3.

Still, buyers can get more for their money by widening their search to more affordable areas.

‘Where you buy continues to make a huge difference to affordability,’ Asaam confirms. ‘Our recent research shows homebuyers can save 28% on average by looking just next door to the UK’s priciest postcodes. For first-time buyers in particular, a small shift in location could make a big difference – not just in getting on the ladder, but in what kind of property is within reach.’

Smaller deposit mortgages

‘This is encouraging news for first-time buyers, but I’d challenge the idea that buyers necessarily need to save the typical £24,000 deposit quoted,’ says MB Associates’ Sales & Operations Director Les Pick. ‘There are now far more options for people with smaller deposits. Many lenders offer 95% mortgages, meaning a 5% deposit may be enough, while Halifax currently offers a first-time buyer mortgage requiring just a £5,000 deposit on properties valued up to £300,000, subject to eligibility.

Les adds: ‘A larger deposit can mean access to better rates, but first-time buyers shouldn’t assume they need tens of thousands of pounds before speaking to an adviser. The message I’d give buyers is simple: don’t wait until you think you have a big enough deposit. Speak to a broker early and find out what is actually possible – you may be much closer to buying your first home than you think.’