Mortgage affordability could return to its most manageable level in almost five years, according to a new analysis from Interest by Moneyfacts.
The research shows that average mortgage payments, which peaked at almost half of gross monthly income in 2024, could fall back to 40% to 41% of average gross salary later this year, a level last seen in 2021.
If the average mortgage interest rate remains around 4.25% to 4.50% based on current assumptions.
Analysis shows that average mortgage payments peaked at 49.1% of a typical gross monthly salary in June 2024 and fell to 45.1% twelve months later in June 2025.
Moneyfacts predicts that the affordability outlook for June 2026 will be as follows:
- 40.7% with an average mortgage interest rate of 4.25%
- 41.8% with an average mortgage interest rate of 4.50%
According to Moneyfacts, this represents a significant improvement compared to the affordability crisis of 2023 and 2024, when sharp interest rate increases pushed the monthly mortgage affordability for many households to the limit or even beyond.
The improvement is supported by a more stable economic environment, as wage growth is expected to remain resilient, with companies budgeting a wage increase of around 3.2%.
House price growth is expected to moderate to around 2.5%, easing pressure on buyers, while inflation is expected to move back towards the Bank of England’s 2% target.
Moneyfacts predicts that these trends should make it possible to reduce mortgage costs without a revival of house price inflation.
While calls for rapid base rate cuts are often aimed at helping borrowers, Moneyfacts’ historical interest rate data shows that cutting rates too far risks compounding future affordability problems.
During previous periods of ultra-low interest rates, cheap loans encouraged more capital to flow into real estate, causing prices to rise faster than wages.
Any short-term relief from lower monthly payments was quickly absorbed by higher home prices, leaving first-time buyers worse off once interest rates normalized.
Instead, Moneyfacts says a more balanced, ‘neutral’ base rate will support borrowers without penalizing savers, promoting sustainable affordability rather than another boom-and-bust cycle.
Adam French, head of consumer finance at Moneyfacts, said: “Mortgage rates are easing, but the era of increasingly cheaper borrowing is firmly behind us. Many fixed rate lenders will have already incorporated the forecast rate cuts into their product prices to some extent and the extent to which mortgage rates will fall remains to be seen.”
“However, mortgage affordability is moving in the right direction, and that will be a real relief for borrowers who have weathered a very difficult few years.”
“Interest by Moneyfacts’ analysis shows that a balanced base rate can give borrowers real breathing space while keeping house price growth in check. But this should not be mistaken for a return to the era of ultra-low interest rates.”
“First-time homebuyers in particular will benefit from improved affordability, but only if house price inflation remains under control. Cutting interest rates too far risks pumping excess capital back into the housing market, inflating prices and reversing the affordability gains many buyers and borrowers are hoping for.”
“The challenge for the Bank of England is to strike a balance between supporting borrowers, rewarding savers fairly and avoiding the mistakes that have made homes increasingly unaffordable in the past.”
Mary-Lou Press, chair of Propertymark of the National Association of Estate Agents, also added: “While it is welcome that mortgage affordability is starting to return to levels seen at the start of the decade, there is still some way to go before inflationary pressures and base rates fall enough for households to see a real improvement in everyday housing costs.”
“It is encouraging to see lenders responding to greater economic stability by offering more competitive mortgage products, which should help restore confidence among buyers. However, affordability is about more than just interest rates. High house prices, the challenge of making a deposit and broader cost-of-living pressures continue to be a barrier, especially for first-time buyers.”
“A stable and balanced credit environment is essential. A return to ultra-low interest rates could risk fueling house price inflation and undermining long-term affordability. If current momentum is maintained alongside progress in increasing housing supply, 2026 could mark a year of more sustainable growth for the UK housing market.”