- We look at house prices compared to earnings, rents and mortgage costs
Houses in Britain are often labelled as unaffordable, with a growing number of aspiring homeowners saying they feel priced out.
Rising house prices, increasing household bills and higher mortgage rates are making it more difficult for many to save up and get on the property ladder.
But there are several different sets of figures you can look at to determine whether housing is affordable – and by some of those metrics, house prices are cheaper now than they were in the recent past.
While that will be welcomed by anyone keen to buy their first home, it might be seen as bad news by some homeowners.
However, endless year-on-year property price rises can become unsustainable, and ultimately lead to a price ‘correction’ – to use estate agent parlance – or even a crash.
If prices have become more affordable in recent years, then arguably there is a better investment case for buying a home and lower risk of bigger price falls down the line.
We looked at three different metrics to establish how expensive house prices really are.
Value for money? House prices always seem to get more expensive, but by some metrics they are actually becoming cheaper
First, the house price to earnings ratio – the average property price, expressed as a multiple of the average salary.
Second, the house price to rent ratio – the average cost of renting compared to buying.
And finally, the mortgage to income ratio – how much on average people are spending on mortgage repayments as a proportion of their salary.
1. How do house prices compare to salaries?
According to this data, houses are getting more affordable.
The average house price to earnings ratio currently sits at 8.5 times the average gross income, according to analysis by the estate agent Yopa of ONS figures.
Whilst this ratio is still higher than a decade ago, when it sat at 8 times income, it has fallen from its recent peak.
Since 2014, the house price to income ratio has generally increased year on year, peaking at 9.5 times income in 2022.
However, it has fallen over the last two years, to 8.7 in 2023 and then to the 8.5 seen in 2024.
As it stands, there have been just two years in the last 10 when the income to house price ratio was lower than it is today – 2014 when house prices were 8 times income and 2015 when they were 8.4 times income.
The reason for this improving affordability is strong growth in wages, coupled with more sluggish house price growth.
For example, in 2023, house prices fell by 2.7 per cent, whilst wages climbed by 6.3 per cent.
While house prices climbed by 4.6 per cent in 2024, the annual rate of earnings growth sat at 7.1 per cent.
‘Higher house prices don’t necessarily mean that homebuyers are worse off,’ said Verona Frankish, chief executive at Yopa.
‘Earnings growth is also a driving factor and, in recent years, homebuyers have seen housing affordability worsen due to house price growth far outpacing the rate of increase in the average income.
‘The good news is that over the last two years, this balance has swung back in favour of homebuyers, with consistently strong earnings growth and a subdued property market helping to re-level the playing field.’
A sticking point, though, is that mortgage lenders tend to limit most buyers to borrowing no more than 4.5 times their annual income.
On that basis, house prices are unaffordable for many unless they are able to bridge the gap with savings, a gift from family or an inheritance windfall.
And while the affordability ratio is falling, it is still is much higher by historic standards.
The house price to earnings ratio tended to stay between 4 and 6 times average earnings for the 50-year period from 1950 to 2000, according to previous analysis by Schroders.
That said, there are many more people buying jointly these days, whereas in the past more people opted to buy their first home alone, or as part of a couple with only one income.
This growing trend can be seen in the data. Between January 2006 and the end of 2024, the proportion of mortgaged house purchases made in joint names has risen from 21 per cent to 42 per cent, according to the trade association, UK Finance.
National averages also hide enormous regional differences in housing affordability.
At one extreme you have London’s affluent borough of Kensington and Chelsea, where the average house price is about 24.1 times the median yearly income in that area, according to Yopa.
At the other end of the spectrum you have North Ayrshire in Scotland, where the ratio is only 3.9, meaning local house prices are barely four times annual earnings – the most affordable area of the UK by this measure.
2. House prices compared to rents
Comparing house prices to rents is another metric that suggests the housing market is beginning to look better value for money – at least for those whose alternative to buying a home is staying in rented accommodation.
Rents have seen staggering increases in recent years.
The average asking rent has increased 40 per cent in the last five years, rising from £1,087 per month to £1,526 per month, according to Rightmove.
Meanwhile, asking prices on the sales market are up by 19 per cent in five years over the same period, rising from £312,625 to £371,870.
This has meant that owning a home and paying a mortgage has once again become far cheaper than renting, according to recent analysis by Zoopla.
In late 2023, high mortgage rates meant that renters were paying just 2 per cent more than first-time buyers for their monthly housing costs.
However, now with rates having fallen somewhat, average first-time buyer mortgage payments are 20 per cent lower than average rents according to the property portal.
The average mortgage for a first-time buyer purchasing with the typical 20 per cent deposit is £1,038 a month compared to the average rent of £1,248 a month.
The house price to rent ratio shows how average house prices compare to one year’s worth of the average rent.
In 2022, house prices cost 20 times the typical yearly rent, but at the start of this year that fell to 17 times – the lowest ratio since early 2017.
Rob Dix, co-founder of property advice website Property Hub and co-host of The Property Podcast believes this is a useful metric to measure value – not only for renters considering buying a property, but also for landlords looking to buy and hold over the long term.
‘One way of looking at value as an investor is the ratio of price to rental income, just like price to earnings is used in the stock market,’ said Dix.
‘In 2015 the ratio stood at 16, and by 2022 it had expanded to more than 20 – meaning properties were more expensive compared to the income they produced.
‘Since then, it’s fallen back to below 17 – as rents have increased, while property values have broadly stood still.
‘This means that while property doesn’t represent a bargain for investors at current prices (using this national-level data at least), nor are we anywhere close to an irrational bubble where investors are paying over the odds compared to the income generated.
‘Nevertheless, investors who are using mortgages will have higher financing costs than they did pre-2020 when the ratio was last at this level.’
3. How do mortgage costs compare to earnings?
The average rate on new mortgages is 4.51 per cent, according to loan data from the Bank of England.
On a £200,000 mortgage being repaid over 25 years that would mean someone having to pay £1,112 a month.
The average mortgage size is just below this figure at £192,114, according to figures from Stonebridge, a broker which has a network of more than 1,200 mortgage advisors across the UK.
It says that the average amount people are spending on their mortgage is slightly above the long-term average.
As of January this year, mortgaged Britons are spending 37 per cent of their salary on mortgage repayments against the 10-year average of 35.9 per cent.
While current levels appear to be slightly higher than the norm over the past 10 years, it comes at a time when most people are having to take on mortgage rates of between 4 and 5 per cent, rather than between 1 and 2 per cent, which was the case for much of the last decade.
Affordability is still significantly better than it was in December 2023, according to Stonebridge, when mortgage repayments accounted for 42.4 per cent of the average salary.
This is perhaps not surprising given that in 2023, a combination of base rate hikes and worries over inflation figures saw average two-year fixed mortgage rates reach a high of 6.86 per cent in the summer, according to Moneyfacts, while five-year fixed rates hit 6.35 per cent.
It is also better now than in the summer of 2024 when people were spending more than 40 per cent of their income on mortgage repayments.
Stonebridge’s analysis combines official wage and mortgage rate statistics with its own loan data to determine the relative affordability of mortgage finance in proportion to the average borrower’s earnings.
Rob Clifford, chief executive at Stonebridge, said: ‘Mortgage affordability has continued to be tight as rising house prices push loan sizes higher and mortgage rates edged up.
‘But in context, remember that affordability remains significantly better than at the start of last year, and affordability will definitely improve as rates fall in coming months.
‘While the Bank of England’s Monetary Policy Committee opted to hold interest rates in March, there are mounting calls for it to reduce borrowing costs further.
‘At the same time, the UK economy is struggling for momentum. If growth continues to stall, the MPC may have little choice but to step in to provide support.
‘That could lead to lower borrowing costs in the months ahead, offering much-needed relief to mortgage borrowers, who are still grappling with the impact of the cost-of-living crisis.’