Marginal house price inflation, in conjunction with strong wage growth, means buying a home is becoming more affordable relative to income.

Analysis by Halifax, based on its House Price Index data, compared typical house prices to average earnings across the UK.

House prices have increased by 3.8% year-on-year, reaching an average of £292,508. During the same period, annual earnings for full-time workers rose by 5% to an average of £44,667.

The result is that wage growth has outpaced house price inflation, with the house price to income ratio totalling 6.55, down from 6.62 last year. The house price to earnings ratio has gradually reduced since it reached a record high of 7.24 in the summer of 2022.

HIGHER INTEREST RATES

While market activity has been improving – the number of new mortgages agreed recently reached its highest level in two years – residential property purchases are down by around a third (-33%) compared to 2021, when interest rates were at a record low of 1.3% on average, compared to 4.1% in September this year.

A reduction in demand from buyers, from the highs of 2021, is one of the reasons house prices have remained flat for much of the last two years, with the average house price of £292,410 in 2022 comparing to £292,508 in 2024.

Typical monthly new mortgage costs have fallen by about 9% over the last year, from £1,116 to £1,060. That’s based on the typical monthly cost of a 5-year fixed rate mortgage, with a 30-year term and a 25% deposit (average interest rates of 5.2% and 4.1% respectively). Based on the average UK full-time income, that equates to mortgage costs as a percentage of income falling from 33% to 29%, its lowest level in over two years.

On the same basis, mortgage costs have fallen in each nation and region of the UK over the last year.

“[It is] great news for first-time buyers and existing homeowners looking to remortgage or move up the property ladder”

Amanda Bryden, head of Halifax Mortgages, said: “Housing affordability has improved over the past year, thanks to stabilising property prices, strong wage growth, and easing interest rates. That’s great news for first-time buyers and existing homeowners looking to remortgage or move up the property ladder.

“However, while homes are becoming more affordable, the progress has been gradual. Buying a property remains a significant challenge for many, with prices still near record highs and interest rates likely to stay higher than we’ve been used to over the past decade.”

GEOGRAPHICAL COMPARISONS

While the national house price to earnings ratio has eased, making homes more affordable on average, there’s a mixed picture across the UK.

House prices in some parts of the UK have become less affordable, with Northern Ireland experiencing the largest increase in the house price to earnings ratio from 4.88 last year to 5.09 this year, driven by a substantial 10% rise in house prices.

In England, the North West, South East and Yorkshire & Humberside also saw an increase in their house price to earnings ratios, meaning homes have become less affordable in these areas relative to income.

Although London still boasts the highest average house price of £539,238, its house price to earnings ratio of 8.22 is lower than the South East – which is the highest (or least affordable) of all regions at 8.96 (up slightly from 8.95 last year).

Conversely, the North East of England is the most affordable region, with a house price to earnings ratio of 4.38. This is down from 4.56 last year, meaning that homes in the area have become more affordable. This is because house prices in the North East rose by +2.4% and were outpaced by a +7% increase in average income for the area.

MOST AND LEAST AFFORDABLE LOCAL AREAS

At a local level, the North of England accounts for many of the most affordable areas.

Kingston upon Hull in East Yorkshire is crowned the most affordable area of the UK, with a house price to earnings ratio of 3.15. This is followed by Burnley and Blackpool in the North West, with ratios of 3.20 and 3.34 respectively.

Elmbridge in Surrey is the least affordable local area by some distance, with a house price to earnings ratio of 17.54. St Albans in Hertfordshire is in second place with a ratio of 13.96, followed by Kensington and Chelsea in London at 13.93.

However Elmbridge also saw the biggest improvement in affordability, falling from 19.46 in 2023. The biggest deterioration in affordability was recorded in Oxford in the South East, rising from 8.37 to 10.26.

Bryden added: “While national house price figures often grab the headlines, it’s crucial to remember that the property market varies significantly at a local level. The most sought-after areas tend to have the highest prices, and local developments, such as improved transport links or job opportunities, can all help to drive demand.

“Shared ownership can be a great option for first-time buyers. It allows you to purchase a share of the property’s market value rather than the entire home, making it a more affordable way to step onto the housing ladder and giving you the benefit of growing your equity share if the property goes up in value.”

“house prices are likely to inflate by the surge of first-time buyers rushing to beat the stamp duty holiday deadline following the changes at the budget, leaving affordability under pressure”

Karen Noye, mortgage spokesperson at Quilter, added: “The Halifax Affordability Review lays bare the challenges facing the UK housing market. Our calculations based on the figures show that the difference of just one year in terms of the mortgage rates on offer could saddle homeowners with an additional £20,000 in interest over the life of a 30-year loan.

“According to Halifax, in Q3 2023, the average monthly mortgage cost was £1,166 based on the average house price, a 5-year fixed rate, a 25% deposit, and a 30-year term with average interest rates. By Q3 this year, the monthly cost decreased to £1,060. Over the full term, this difference could mean a total repayment of £401,822 compared to £381,812 on the average home.

“This reality reflects the pressures buyers have faced in recent years as fluctuating rates and economic uncertainty have bred a degree of paralysis in the market. Many prospective homeowners have hesitated to commit, and this caution has contributed to more subdued house price growth. However, it’s worth noting that house prices are likely to inflate by the surge of first-time buyers rushing to beat the stamp duty holiday deadline following the changes at the budget, leaving affordability under pressure.

“Unfortunately, while affordability has improved slightly over the past year, this progress remains fragile. Wage growth, though outpacing house price inflation, may falter in the face of the government’s proposed budget changes, particularly around employer National Insurance Contributions (NICs), which could constrain businesses’ ability to deliver meaningful pay rises. Without robust wage increases, any affordability gains could quickly evaporate, particularly given the persistent supply and demand issues plaguing the UK housing market.

“With too few homes available to meet demand, house prices remain likely to continue their upward trajectory even as wage growth stagnates, further exacerbating affordability challenges for first-time buyers. The government’s target of building 300,000 homes a year offers some hope of stabilising prices if achieved, but that ambition remains far from reality. For now, the combination of rising prices, modest wage growth, and recent market distortions, such as the stamp duty rush, continues to weigh heavily on prospective buyers. Without significant policy intervention, the affordability crisis will persist, leaving many aspiring homeowners locked out of the market.”