The Halifax Affordability Review suggested affordability was slowly improving, as this was lower than the record-high ratio of 7.24 in the summer of 2022.
The report found that house prices had risen by 3.8% since last year to average £292,508, while annual earnings for full-time workers increased 5% to an average of £44,667 over the same period.
Amanda Bryden, head of Halifax Mortgages, said: “Housing affordability has improved over the past year, thanks to stabilising property prices, strong wage growth, and easing interest rates. That’s great news for first-time buyers and existing homeowners looking to remortgage or move up the property ladder.
“However, while homes are becoming more affordable, the progress has been gradual. Buying a property remains a significant challenge for many, with prices still near record highs and interest rates likely to stay higher than we’ve been used to over the past decade.”
Interest rates causing flat house price growth
Halifax said although activity in the market had recently picked up, residential purchases were down by around a third when compared to 2021, when interest rates were at a record low of 1.3% on average. By comparison, interest rates averaged 4.1% in September this year.
Average new mortgage costs have dropped by around 9% since last year, from an average of £1,116 to £1,060.
Halifax based this on a five-year fixed rate with a 30-year term and 25% deposit, at average rates of 5.2% and 4.1% respectively.
Based on the average UK income, mortgage costs fell from 33% of a person’s earnings to 29%, the lowest level in more than two years.
Fewer buyers in the market have also resulted in flat house prices over the last two years, with them averaging £292,410 in 2022 and £292,508 this year.
Regional and national differences
Some areas of the UK saw housing affordability worsen, such as Northern Ireland, which saw the biggest rise in the house price to earnings ratio from 4.88 last year to 5.09 this year.
This was driven by a 10% lift in house prices.
The house price to income ratio also rose in the North West of England, South East, and Yorkshire and the Humber.
While London has the highest average house price of £539,238, its house price to earnings ratio of 8.22 is lower than the South East’s, which is 8.96, slightly up from 8.95 last year.
House prices relative to income are the most affordable in the North East, at a ratio of 4.38. This is lower than 4.56 last year, suggesting affordability has improved. In the region, house prices rose by 2.4% annually, while incomes increased by 7%.
Bryden added: “While national house price figures often grab the headlines, it’s crucial to remember that the property market varies significantly at a local level. The most sought-after areas tend to have the highest prices, and local developments, such as improved transport links or job opportunities, can all help to drive demand.
“Buying a home is one of the best financial decisions many of us will ever make, offering greater financial security and better retirement options. For homebuyers and movers, it often pays to be flexible with the location you are looking at, as exploring nearby neighbourhoods can sometimes offer better value for money.”
