Mortgage affordability is on track to return to levels last seen in 2021 offering borrowers their first meaningful relief in almost five years.
Analysis from INTEREST by Moneyfacts indicates that average mortgage payments, which peaked at close to half of gross monthly income in 2024, could fall back to around 40–41% of the average salary later this year, provided mortgage rates settle between 4.25 and 4.5%.
At the height of the squeeze in June 2024, typical mortgage costs consumed 49.1% of gross monthly pay. That eased to 45.1% by June 2025.
On current projections, affordability in 2026 could improve to 40.7% at a 4.25% average rate, or 41.8% at 4.5% – a level last seen before the post-pandemic rate shock.
ECONOMIC BACKDROP
The shift marks a decisive break from the strain of 2023 and 2024, when rapid interest rate rises pushed borrowing costs beyond sustainable levels for many households and stalled market activity.
The improvement is being underpinned by a more balanced economic backdrop.
Pay growth is expected to remain resilient, with employers budgeting for wage increases of around 3.2%. House price growth is forecast to slow to about 2.5%, easing pressure on buyers, while inflation is expected to drift back towards the Bank of England’s 2% target.
Together, these factors point to easing mortgage costs without reigniting the house price inflation that has repeatedly undermined affordability.
Ultra-low interest rates consistently fuelled faster house price growth.
Moneyfacts’ historic analysis shows that periods of ultra-low interest rates consistently fuelled faster house price growth as cheap borrowing poured into property.
Any short-term reduction in monthly payments was quickly offset by higher prices, leaving first-time buyers worse off once rates eventually rose.
A more neutral base rate, the analysis suggests, offers a better route to sustainable affordability – supporting borrowers without distorting the market or punishing savers, and avoiding another cycle of inflated prices followed by painful correction.
IMPROVING AFFORDABILITY
Adam French, head of consumer finance at Moneyfacts, said: “Mortgage rates are easing, but the era of ever-cheaper borrowing is firmly behind us.
“Many fixed rate lenders will have already factored forecast rates cuts into their product pricing to some extent and just how far mortgage rates will fall remains to be seen.
“However, mortgage affordability is moving in the right direction, and that will come as a real relief to borrowers who have endured a few really tough years.”
FIRST-TIME BUYER BOOST
He added: “First-time buyers in particular stand to benefit from improving affordability but only if house price inflation stays in check.
“Cutting rates too far risks pumping excess capital back into the housing market, inflating prices and undoing the very affordability gains many buyers and borrowers are hoping for. T
“The challenge for the Bank of England is balance between supporting borrowers, rewarding savers fairly, and avoiding the mistakes that made homes increasingly unaffordable in the past.”
