I’ve spent years looking at the nuances of the UK housing market and while the latest data from Halifax offers glimmers of hope it’s clear that we’re still a long way from solving the nation’s affordability puzzle.
Housing affordability, long a thorn in the side of prospective buyers, has been showing some small signs of improvement.
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.
But buying a home is becoming more affordable relative to income as house price increases ease and wage growth remains strong
House prices have increased by +3.8% compared to a year ago, reaching an average of £292,508.
Meanwhile, annual earnings for full-time workers climbed by +5% 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.
What stands out most is the patchwork nature of affordability across the UK.
In regions like the North East, where the house price-to-earnings ratio has fallen to 4.38, owning a home has become marginally more attainable.
Compare this to the South East though, where the ratio sits at a staggering 8.96, or Elmbridge in Surrey, where the least affordable local area boasts a ratio of 17.54.
Differences like those only serve to underline the stark regional inequalities baked into our housing market.
And then there’s London. Long the poster child for unaffordability, its house price-to-earnings ratio of 8.22, though eye-watering, no longer leads the pack.
Halifax says that this reflects a softening in demand as many buyers look beyond the capital for better value and quality of life.
Yet this ‘improvement’ doesn’t mean the capital’s housing woes are solved – far from it. It’s merely a sign of shifting pressures.
And while house prices have largely stabilised, they remain perilously close to record highs.
Indeed, latest data from Nationwide reveals house prices in the UK rose at their quickest pace in two years in November, with annual growth reaching 3.7%.
On a monthly basis, prices climbed 1.2%, the largest increase since March 2022, leaving values just 1% below the all-time peak recorded in the summer of 2022.
Combined with the likelihood of interest rates staying elevated for the foreseeable future, this makes even modest improvements in affordability feel like cold comfort.
For first-time buyers, the barriers remain daunting.
A 25% deposit on the average house price of £292,508 still demands nearly £73,000 - a sum far beyond the reach of most without family help from the Bank of Mum and Dad or years of saving.
As Amanda Bryden, Head of Halifax Mortgages, points out, the housing market is a deeply local phenomenon.
While affordability improves in places like Hull or Burnley, soaring house prices in areas such as Oxford or Northern Ireland remind us that the property ladder is far from evenly spaced.
For many, the dream of homeownership remains just that - a dream.
Is a market correction needed? Maybe. What we do need is a concerted effort to address housing supply and to build more houses.
The information contained within was correct at the time of publication but is subject to change.
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https://www.halifax.co.uk/media-centre/house-price-index.html
UK Property and Finance Expert
