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Housing affordability in England and Wales returned to its pre-pandemic levels last year after wages rose much faster than house prices, official figures show.
The median average home in England last year cost £290,000 — 7.7 times the median average earnings of a full-time employee. This was below the 7.9 reported in 2019, and down from a peak of 9.0 in 2021, figures from the Office for National Statistics showed.
While the rise in mortgage rates since 2020 means many households will not have felt the impact immediately, the changing ratio does help those looking to buy a home who are required to show relative earnings to house price.
“It provides a platform for [house price and sales] growth as those rates come down if you have had an easing in the underlying affordability,” said Lucian Cook, head of residential research at property group Savills.
The ratio of house prices to earnings rose sharply between 2020 and 2021 as interest rates were cut to rock bottom and the UK government brought in tax incentives for home buyers.
Since 2021 house prices in England and Wales have increased 1 per cent, while average earnings have risen 20 per cent. The sharp rise in inflation and interest rates over that time has depressed home sales and prices, and led to wage increases.
Typical mortgage rates were around 2 per cent at the start of 2020, just before Covid-19 struck, and now stand around 4-5 per cent. This means that monthly mortgage payments and affordability tests for prospective buyers are still much steeper than they were before the pandemic.
The increase in mortgage costs has hit households slowly as their fixed rate mortgage deals end.
“There are still a significant number of households that are due to come to the end of five-year fixed-rate deals later this year and will be facing an increase in their household bill,” said Cook.
Nationwide data showed that mortgage payment reached 37.7 per cent of takeaway home pay for first-time buyers in the final three months of 2024. This was down from a peak of 38.4 per cent at the end of 2023, but still well above the 27.7 per cent in the fourth quarter of 2019, which was before the pandemic.
Separate analysis by Savills on Monday showed that the average mortgaged homeowner is paying £12,754 a year, some £2,829 more than in 2022, the year mortgage rates started to rise.
Overall UK housing costs reached the highest level on record in 2024 when adjusted for inflation, Savills said. Houses are still less affordable than they were 20 years ago, when the price-to-earnings ratio stood at 6.79.
Renters are also feeling the pinch of higher housing costs as rents have risen at a record pace in recent years. For new tenancies, rent cost 29 per cent of gross income in February, up from 25.8 per cent at the end of 2019, according to figures from property data company PriceHubble published by the ONS.
