An examination of UK house price affordability. Latest data
UK House price to earnings ratios (all buyers) reached a peak in 2022 of 7 times earnings (Nationwide data), since then affordability has improved somewhat, but still out of reach for many potential first time buyers.
The house price to earnings ratio is most extreme in London, with the ratio reaching 9.5 times salary. Housing prices in the North, Scotland and Northern Ireland are relatively cheap in comparison.
In many parts of the country, potential buyers are being kept out of the market due to house prices being much higher than average incomes. For young people especially, owning a home has become increasingly unrealistic because the deposit required is out of reach for most workers.
Regional House prices
UK real house prices since 1975
This shows average house prices – adjusted for inflation. It shows that between 1996 to 2008, house prices rose considerably faster than the average price level. However, since 2008, real house prices have fallen 20% in real terms. Yet, despite falling in real terms, affordability has not improved as much as you might expect because of stagnant average incomes
Mortgage payments as % of income
One useful measure of housing affordability is to look at mortgage payments as a percentage of income.
For first time buyers taking on large mortgages, the mortgage payments are still taking up a big % of take-home pay – despite the low-interest rates. The average mortgage payments are lower for average homeowners because many householders took out a mortgage when house prices were cheaper. In this regard, it doesn’t look too bad.
Since interest rates were cut in 2009, mortgage holders have benefitted from low-interest rates, which have made mortgage payments cheaper.
- However, when interest rates rose in 2022 many homeowners saw a nasty shock of rapidly rising mortgage payments.
- Also, rising house prices have required a bigger deposit. This means many who might be able to afford mortgage payments are unable to get a mortgage in the first place
Mortgage rates have started to fall since the 2023 peak. But, it is still considerably higher than the 2021 lows.
Historical House Price Affordability
Going back to the Victorian Age, house prices were over 12 times income. This ratio fell due to the growing supply of houses as towns were expanded into the suburbs. A big factor was the growth of railway, which enabled people to live further from work. It also made it cheaper to buy. Since the early 1990s, there has been a new increase in relative cost. Partly due to increased wealth effect.
ONS measure of affordability
House price affordability since the 1960s. The ONS measure state house prices to incomes are roughly 7.6 times average incomes. It is lower than 2022 peak, but still higher than the pre-crisis 2008 credit crunch.
- House prices have risen significantly faster than average earnings. This is one factor in explaining why the average incomes of those with a mortgage have more than doubled in recent years.
Recent House Price Trends
Slow down in house price inflation.
What Could Happen to House prices in 2026?
See: House price forecasts 2026
What explains the lack of Affordability?
The real lack of affordability is for renters – both private and social rents pay a higher share of income on housing than those who own with mortgage or own outright. This divergence explains why people try to buy, if at all possible.
1. Lack of Supply. After the credit crunch, house prices in many countries, such as the US and Spain fell dramatically. But, in the UK, the drop in house prices has been more muted. This is because the UK never had a boom in house building like other countries.
Housing completions fell close to 150,000 a year in the aftermath of the financial crisis– well below the level (300,000 government target) needed to meet the growth in the number of households.
See also: Housing supply
2. Relative attractiveness of owning a home. Low-interest rates have meant many homeowners have been able to hold onto their houses. The mortgage repossession rate has remained much lower than in the 1992 recession. The low cost of mortgages makes buying still attractive compared to renting, which is expensive.
3. Demand from abroad. The London property market is marked by strong demand from abroad which has kept prices high, especially on the luxury end of the market. In London, 7 out of 10 homes over £5 million are going to foreign nationals (this is London)
4. Regional Differences First-time buyer ratios are much lower in the north. London ratios are almost twice as high. The housing market has become increasingly marked by regional differences. Property hotspots have seen prices go through the roof, whilst other areas have seen prices stagnate or even fall.
5. Population Growth. The 2021 census showed the fastest rise in the population of England and Wales to 59.6 million. The growth in the number of households is even greater – increasing demand for housing. The number of households in England is projected to grow to 27.5 million in 2033, an increase of 5.8 million (27 percent) compared to 2008. This equates to 232,000 extra households per year. (Household projections 2008-2033 – Data.gov)
6. Inherited wealth. There is a growing trend for people to pass on value of house to children, this inherited wealth then gets used to afford spending more on buying a house. Explaining part of the rise in the house price to income multiple.
7. Relatively low interest rates. Lower interest rates make it cheaper to borrow and therefore enable people to take out bigger mortgages
Conclusion
If you ask an average young person in the street about the affordability of housing, you are likely to hear strong anecdotal evidence that it is not affordable. For many, buying a house looks increasingly difficult. – at least not without help from parents with the deposit.
Because of relatively low-interest rates, the cost of mortgage payments as a percentage of income is relatively low. But, since the mid-1990s, house prices have increased substantially more than inflation. It now requires a very high deposit and this is a big barrier to buying a house.
A startling statistic is the projection of 250,000 extra households a year until 2033. Yet, the UK is only building 150,000 to 200,000 per year.
Deposit affordability
Further reading
External
- Nationwide house price index – source of data
About The Author
I love reading your research blog, has anyone published figures for single people living alone, During the 1940s to the 1980s people got married and had families, now it seems there are more people living alone, so the need for more housing has increased or is it because of house prices or wages.
I believe the figure you quote from the census 57m feels like they all live in my area flats are being built on every spare bit of ground, a big proportion cant speak english so did they fill out that complicated census?
Keep them blogs coming i’m learning all the time. David