Buying a house in Britain has become more affordable thanks to a combination of modest house price rises and strong wage growth.
This is evident from a report from mortgage lender Halifax, which states that recent interest rate cuts have also helped improve the prospects for home buyers.
According to the Halifax House Price Index, property values have increased by 3.8% compared to a year ago, to an average of £292,508.
Meanwhile, annual earnings for full-time workers rose by 5% over the same period to an average of £44,667.
As such, wage growth outpaced house price inflation, bringing the house price-to-income ratio to 6.55. This is lower than last year’s ratio of 6.62 and a significant decrease from the ratio of 7.24 in summer 2022.
But there is another factor that affects affordability viz mortgage interest.
Halifax said the number of new mortgages recently reached a two-year high.
Interestingly, the fact that mortgage rates have risen has helped improve affordability. High interest rates have had an impact on the housing market, keeping prices stable over the past two years.
Halifax said the average house price was £292,410 in 2022, up from £292,508 in 2024.
But thanks to falling mortgage prices over the past year, mortgage costs as a percentage of income have fallen from 33% to 29% – the lowest level in more than two years.
On the same basis, mortgage costs have fallen in every country and region of Britain over the past year.
Amanda Bryden, head of Halifax Mortgages, said while this was great news for first-time buyers, there were still challenges.
“Housing affordability has improved over the past year, thanks to the stabilization of property prices, strong wage growth and the easing of interest rates,” she said.
“That’s great news for first-time buyers and existing homeowners looking to take out a new mortgage or move up the property ladder.
“While housing is becoming more affordable, progress is gradual. Buying a home remains a major challenge for many, with prices still reaching near record highs interest rates will probably remain higher than we have been used to for the past ten years.”
Areas where housing has become less affordable
While the Halifax report paints a general picture of the situation for buyers across Britain, a very different scenario often played out when it focused on the regions.
In some parts of Britain, buying a house had even become less affordable. Northern Ireland saw the biggest increase in the house price/earnings ratio, from 4.88 last year to 5.09 this year. According to Halifax, this was caused by a significant 10% increase in house prices.
In England, the North West, South East and Yorkshire & Humberside also saw a rise in house price/earnings ratios.
London may have the highest average house prices – £539,238 – but its house price-to-earnings ratio of 8.22 was lower than the south-east, Halifax said, which was the least affordable of all regions.
According to the analysis, the Elmbridge borough of Surrey was by some distance the least affordable local area, with a house price-to-earnings ratio of 17.54.
Bryden added: “The most desirable areas tend to have the highest prices, and local developments, such as improved transport links or employment opportunities, can all help boost demand.”
Advice to starters with a mortgage lender
For anyone considering buying their first home, Bryden’s advice – based on this research – is to be flexible with location by exploring nearby neighborhoods, which can sometimes offer better value.
She added: “For those struggling to find the money to take that first step onto the property ladder, it’s always worth getting in touch with a mortgage adviser or estate agent early on.
“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 lendersand the range of products.
“Shared ownership, for example, can be a good option for starters. This allows you to buy a portion of the property’s market value rather than the whole house, making it a more affordable way to get on the property ladder and giving you the benefit of your shareholding growing as the property increases in value.
“This means you can deposit more when you make your next move.”