Modest house price inflation, combined with strong wage growth, means buying a home is becoming more affordable relative to income, according to new research.
The analysis – based on data from mortgage lender Halifax House Price Index – compared typical house prices to average earnings across the UK.
House prices have increased by 3.8 per cent compared to a year ago, reaching an average of £292,508. Meanwhile, annual earnings for full-time workers climbed by five per cent to an average of £44,667, over the same period.
This means wage growth outpaced house price inflation, putting the house price to income ratio at 6.55.
This is down from 6.62 last year, with the house price to earnings ratio gradually reducing since it reached a record high of 7.24 in the summer of 2022.
Wage growth and improved affordability have been cited as ‘positive news for first time buyers’, but it has been noted by Halifax bosses that the pacing of progress has been ‘gradual’ and that acquisition of property will still present a challenge’ for prospective homeowners.
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.”
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 compared to 2021, when interest rates were at a record low of 1.3 per cent on average, compared to 4.1 per cent 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 per cent deposit. Based on the average UK full-time income, that equates to mortgage costs as a percentage of income falling from 33 per cent to 29 per cent, 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.
Prices have varied across the nation, and while the market has seen improvement in Northern parts of England, prices remain high in London and the South West. This has been noted by Bryden, who says that there is ‘significant’ difference in the market at a local level.
Bryden also said:
“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.
“Buying a home is one of the best financial decisions many of us will ever make, offering greater financial security and better retirement options. For home buyers and movers, it often pays to be flexible with the location you are looking at, as exploring nearby neighbourhoods can sometimes offer better value for money.
“For those struggling to find the funds to take that first step onto the housing ladder, engaging early with a mortgage advisor or broker is always worthwhile. Navigating the home buying journey and mortgage market can be complex, but they can help you understand your budget, the support options available through various government and lender schemes, and the range of products on offer.
“For example, 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. This means you could have more deposit to put down when you make your next move.”
