UK House Price to income ratio and affordability


An examination of UK house price affordability.


UK House price to earnings ratios  (all buyers) reached a peak in 2022. Above the 2009 peak, which preceded the housing price falls.


The house price to earnings ratio is most extreme in London, with the ratio reaching 11 times salary. Housing prices in the North, Scotland and Northern Ireland are relatively cheap.

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.

UK real house prices since 1975

This shows average house prices – adjusted for inflation. It shows that house prices have risen considerably faster than the average price level.

  • The average UK house price was £271,000 in November 2021.  ONS

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 rise, many homeowners will see 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


UK base rates are starting to rise from historical lows – which will increase the cost of mortgage payments.

The deposit required has risen particularly for first-time buyers. from 10% of purchase price in 1995 to 23% in 2012.

Video on UK Housing market

How did we end up with a broken housing market in the UK?

Affordability index


Median income of mortgage borrowers in UK

income mortgage borrowers
The average income of mortgage borrowers. Source: ONS

The graph shows a significant rise in average incomes of those with mortgages.

  • In 1990, the proportion of people with mortgages on income of over £50,000 was 2.5%. In 2011, the proportion of mortgages by people with income of over £50,000 was 40%.
  • In 2011, only 6.8% of people with mortgages had an income of less than £20,000.  In 1990, 61% of people with mortgages had income less than £20,000
  • There is a similar drop in the % of mortgages held by people under 30 years of age.
  • Source: ONS House price index May 2012
  • This data shows average house price to income ratios. It is based on the ONS mortgage survey.
  • After peaking at a ratio of over 5.0 in 2007, there has been a surprisingly limited drop in the ratio of average house price to average incomes.
  • The graph also shows that the average advance for buying a house has significantly increased. This is one factor in explaining why the average incomes of those with a mortgage have more than doubled in recent years.

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Why are UK house prices so high?


In recent years, we have had a devastating global credit crunch, the longest and deepest recession since the 1930s and then the impact of Covid. Yet, despite this financial and economic upheaval, UK house prices have bucked the trend, avoided a major collapse and now exceeded pre-crash levels. The economics of Covid have even made …

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House prices and interest rates


Interest rates have a strong influence on house prices, principally because changes in the interest rate affect the cost of mortgage payments.

How do interest rates affect house prices?

  • If interest rates rise it will have a significant effect on increasing the cost of mortgages. Higher mortgage payments will deter prospective home-buyers – it becomes relatively cheaper to rent.
  • Also, the high cost of mortgage payments may also force some existing home-buyers to sell.
  • This increase in sellers and decline in buyers will cause house prices to fall.
  • See also: The effect of higher interest rates


When interest rates were increased 1988-92, mortgage interest payment rose rapidly.


The rise in mortgage payments and rise in home repossessions of 1991/92 led to a rapid fall in house prices.

UK base rates

base interest rates


High interest rates caused house price fall in 1990.

However, the fall in 2008/09 – was not due to interest rates, but due to global credit crunch and recession.


  • It is important to bear in mind that interest rates are not the only factor affecting house prices. It is possible for interest rates to increase, but house prices to continue to rise.
  • For example, if confidence is high and we experience a period of rising incomes then people may continue to buy, despite the rise in interest rates.
  • The supply of housing is also very important. A big factor in the current rise of UK house prices is due to the shortage of supply, which is pushing house prices higher.
  • Fixed rate mortgages. Around 50% of homeowners are on fixed-rate mortgages, therefore, they will not notice the effects of higher interest rate payments until they remortgage in 2 or 5 years time. There is often a time-lag between higher interest rates and the effect on house prices.

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Would a cap on house prices work?

Readers Question: Would a cap on house prices work?

Despite the recession and credit crunch, UK house prices continue to rise. (See: Why are UK house prices so high?) This has caused record levels of house price to income multiples. For homebuyers in London, house prices are approaching a record seven times average earnings. Understandably many feel house prices are already too expensive, and there is a strong case for trying to limit future house price increases.



For example, the Royal Institution of Chartered Surveyors have suggested that the Bank of England impose a cap of 5% a year on house price growth. (Independent link)

Firstly, how would a house price cap work?

The Bank of England cannot influence supply in the short term. Therefore, they would have to influence demand through credit controls (e.g. limiting amount of mortgages) and possibly interest rates. Both have drawbacks and limitations.

1. Interest Rates

In theory, The Bank of England could use interest rates as a tool to influence house prices. A rise in interest rates, in the current climate, would inevitably cause an end to the house price growth as mortgages would become more expensive. Mortgage payments are a large % of disposable income, therefore any change in interest rates will have a significant impact on reducing housing affordability and housing demand.

However, the use of interest rates to control house prices has significant drawbacks.

  1. The main aim of monetary policy is the control of inflation and economic growth. If the Bank is asked to also target house prices, it would mean the Bank of England are placed in a difficult position. To prevent house price rises in London, may require higher interest rates. But, at this stage in the economy cycle, a small increase in interest rates could sniff out the recovery. Interest rates can only achieve so much.
  2. Time lags. A change in interest rates will take time to feed through into the housing market. Ideally, the Bank of England would anticipate house price changes, but in practise this is difficult to do. Few would have predicted the strong rise in house prices in recent years. If the Bank did increase interest rates to affect demand for houses and mortgages, it could easily get it wrong. By, the time mortgage rates rose, house prices may be falling anyway.

2. Mortgage regulation

A more realistic option is for the Bank of England to adopt new regulation which makes mortgage lending scarcer. If house prices are rising too quickly, the Bank of England could introduce controls which limit the availability of mortgages. This could involve insisting on certain size of deposits or limiting the size of income multiples.

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Does the UK have a housing bubble?

Readers Question: Do you think the help to buy scheme is fuelling a housing bubble? Only about 3% of houses are bought through this method but do you think that it is likely that a bubble will develop?

In a way, I think you answer the question yourself in stating that only 3% of houses are bought through this method

With such a small percentage of homes bought through this scheme, it is not going to be a major cause of a housing bubble; however, in a relatively significant way, it will add to housing demand. Given the inelastic nature of housing supply, it will make a contribution to pushing up house prices.

Without the help to buy scheme would people have bought houses anyway? I’m not sure. I think the scheme will definitely help some to get a mortgage, and therefore buy rather than renting. In that regard it is adding to housing demand, and therefore pushing up prices, but only a small amount.

Will a housing bubble develop?

This is a more difficult question. There are different types of housing bubbles.

One is the housing bubble experienced by US, Ireland and Spain – where property prices rose substantially above average earnings, and then fell by up to 50%. This is because house prices in these countries became divorced from the fundamentals of housing supply and demand. When the mortgage market experienced difficulties, demand fell and prices fell significantly. The crucial thing about US, Ireland and Spain was that after the housing bubble and bust, there was a large excess supply of housing. Therefore, when demand fell, prices fell considerably.


See: Ireland Housing bubble and bust

The UK housing market behaved differently. When demand fell in 2007/08 because of the credit crunch, prices did drop by 20%. But, house prices stabilised much quicker, and then – defying many predictions – began to rise quite rapidly. Meaning that in the UK, house prices in many areas are higher than before the crash.

The main difference is that in the UK, there was no excess supply of housing; there was no boom in home building. Therefore, when the crash came, there was still this fundamental shortage of housing, which keeps prices ‘artificially’ high.

Why UK property prices may be overpriced


  • Interest rates set to rise. UK interest rates have stayed at zero since early 2009; this period of ultra low interest rates has benefited the property market and kept mortgages affordable. If interest rates rise back to ‘normal’ rates (e.g. around 5% – many homeowners will see a sharp rise in the cost of mortgages, causing demand to fall. The Bank of England recently did a survey and found a two-percentage-point rise in mortgage interest rates would likely raise the proportion of mortgagors with a debt service ratio (DSR) of at least 40% from its current level of 4% to about 6% (360,000 to 480,000 households)

    UK housing – prices kept affordable by low interest rates.
  • House price to income ratios. House prices have risen much faster than incomes, meaning the younger generation are not able to get a mortgage. The average age of mortgage holders has increased, and the deposit required has also gone up. Because house prices are so expensive, there are many who cannot consider buying.

    House price to earning ratios for first time buyers. The ratio is 5.0 significantly higher than previous decades.

  • Buy to let market. With home ownership rates falling, the growth in demand for housing is coming from investors.


    These investors are more likely to be sensitive to changing house prices. If there is a sustained drop in prices, this may be magnified by investors leaving the UK housing market.

  • Economic growth is still fragile. Although the UK recovery is reasonably strong, the Eurozone looks weak with anaemic growth and the threat of deflation; there is a strong possibility that a weak EU economy could act as a drag on UK growth.

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Irish property market – boom and bust

During the 1990s and first half of 2000, Ireland had one of the longest property booms on record. Between 1996 and 2006, the average price of second homes rose in Ireland rose by over 300%. The average price of new houses rose by 250%, according to the Department of Environment, Heritage and Local Government (DoEHLG). However, since the peak in early 2007, Irish house prices have fallen 50% – and there are few signs of promise for the Irish housing market.

The rapid rise in Irish prices was initially a reflection of economic fundamentals.

  • Economic growth enabling more people to be able to afford to buy.
  • Irish house prices were relatively cheap in the early 1990s.

However, from the early 2000s, house prices increasingly reflected a boom period, with prices pushed higher by:

  • Speculation, with property developers buying to let.
  • Expectations of continued rising house prices encouraging people to get into property.
  • Rising house prices encouraged home owners to take out equity withdrawal and use the money to invest in second homes.
  • A booming and unregulated banking sector. The finance boom encouraged banks to lend more variable mortgages with lower deposit requirements – 100% mortgages were common. Also people borrowed very high salary multiplers. Mortgages upto 10 times salary were said to be given.

Irish vs UK house prices


Both property markets see a sharp fall in house prices in 2008/09. But, whereas the UK property market stabilised, Ireland continued to see one of the longest continued periods of falling house prices – making it one of the biggest global property collapses.

The Irish housing market crash


Source: CSO

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