Homebuying becomes more affordable as wage growth outpaces house price rises

Buying a home has become slightly more affordable relative to income, according to research from Halifax.

It says the average house price to earnings ratio has eased to 6.55, down from 6.62 last year.

Wage growth has outpaced house price inflation, with pay increasing by 5%, compared to a 3.8% rise in house prices over the past year.

Mortgage costs as a percentage of income have also fallen to 29% from 33% over the same period.

‘Housing affordability has improved’

The lender’s head of mortgages, Amanda Bryden, 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.”

She adds: “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.”

House price to earnings ratio

While the national house price to earnings ratio has eased, there’s a mixed picture across the UK.

Some regions, like Northern Ireland, have seen affordability worsen, while others, like the North East, have become more affordable.

At a local level, Kingston upon Hull is the most affordable area, while Elmbridge in Surrey is the least affordable.

Ms Bryden said: “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.”

Affordability pressures relented

Tom Bill, the head of UK residential research at Knight Frank, said: “Affordability pressures relented this summer but have increased since the Budget as the government borrows more and inflationary risks intensify.

“We expect house price growth and transaction volumes to moderate as it again becomes impossible to agree a fixed-rate deal starting with a three.”

Toby Leek, the NAEA Propertymark president, said: “Buyers’ affordability continues to grow, not only as property prices start to align with wages, but also as interest rates steadily improve which has allowed more competitive mortgage products to enter the market compared to what was seen at the start of the year.

“Additionally, with Stamp Duty increases due from April 2025 in England and Northern Ireland, we expect movers to be pushing through and completing on their home purchases in order to save, in some cases, thousands of pounds as they move into the New Year.”

Challenges facing the UK housing market

Karen Noye, a mortgage expert at Quilter, said: “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 five-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.”

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