Boost for buyers as house price to earnings ratio hits decade low
Homes are becoming more affordable but higher mortgage rates are offsetting many gains, says Lloyds’ Andrew Assam.
The typical house price to earnings ratio has hit its lowest level since 2015.
Research by Lloyds shows the average home in Britain costs the equivalent of 7.3 times average earnings, down from 7.6 a year ago.
Nationally, the average property price increased by 0.5% in the past year, to £299,131, while average earnings rose by 4.5% to £40,790, narrowing the gap between average house prices and earnings.
For first-time buyers, homes now cost less than six times earnings, falling from 6.1 to 5.9.
There are some encouraging signs for people looking to buy a home.”
However, while house prices have become more affordable compared to earnings, the lender warns that higher interest rates mean average monthly mortgage repayments have increased during the past year, rising from £1,100 to £1,157.
The gap between Britain’s most and least affordable housing markets has also narrowed slightly in the past year, with the biggest improvements in affordability generally seen in regions where house prices were most expensive relative to earnings.
The South East recorded the largest improvement, with the average home now costing 9.1 times earnings, down from 9.7 a year ago. Greater London followed, falling from 10.9 to 10.3, while Eastern England improved from 8.7 to 8.2 and the South West from 8.2 to 7.7. Despite these improvements, London and the South East remain the two least affordable regions.
By comparison, regions and nations with lower house price to earnings ratios generally saw less movement. The ratio fell from 5.1 to 5 in the North East, while Scotland remained broadly unchanged at 5.3. In the North West, it fell from 6.5 to 6.3, while Yorkshire and the Humber reduced from 6 to 5.8.
Northern Ireland was the only nation or region where house prices became less affordable relative to earnings. House prices rose by 7.4% compared with a 3.7% rise in earnings, causing the price to earnings ratio to increase from 5.8 to 6.
Andrew Asaam (pictured), Mortgages Director at Lloyds, says: “There are some encouraging signs for people looking to buy a home. Wages have continued to rise while house prices have remained relatively stable, helping to narrow the gap between earnings and house prices.
“However, affordability remains stretched for many households. Mortgage rates are higher than they were a year ago and saving for a deposit continues to be one of the biggest barriers facing first-time buyers.
“Buyers may have more options than they realise, including mortgages designed for those with smaller deposits. While these won’t be right for everyone, they can help some buyers take their first step onto the housing ladder sooner.”
Affordability gaps
Ian Harris, President of NAEA Propertymark, says: “While the narrowing gap between house prices and earnings is encouraging, affordability on paper does not always translate into affordability at the point of purchase. Buyers are still facing higher borrowing costs and the challenge of raising a deposit, with many having to compromise on property type, location or budget.
“Location also remains crucial. Widening a search can unlock better value, but moving further from work, family, schools and support networks can bring additional costs and practical considerations that headline affordability measures don’t capture.
“For first-time buyers in particular, the challenge is not simply finding a property that looks affordable relative to earnings, but securing a manageable mortgage, raising a deposit and finding a home that works for everyday life. The latest figures show progress, but affordability remains a careful balancing act for many households.”
