House prices to income ratio have declined in the UK, but an increase in interest rates has offset the benefits of affordability, reveals the latest analysis by Halifax, Britain’s largest mortgage lender.
UK’s house price to income ratio has eased following last summer’s peak, a welcomed change attributed to strong wage growth and a reduction in property prices. However, the rise in interest rates has undermined the overall improvement in housing affordability.
The most expensive places to buy a home in the UK are Westminster and the City of London, while the west coast of Scotland’s Inverclyde is the most affordable. Surrey Heath, located in the South East, has seen the most significant improvement in affordability over the past year.
Halifax’s analysis reveals that London, despite recording one of the lowest rates of house price growth over the past year, continues to be the least affordable region, with an average house price of £533,057. In contrast, the North East of England remains the most economical region, with a typical house price of £168,240.
While homebuyers might appreciate the narrowing gap between house prices and incomes, the rising mortgage rates have impacted the overall housing costs. Typical monthly mortgage costs have surged by 22% over the past year, a stark increase during a time when many are experiencing a wider cost of living squeeze.
The current figures are consistent with the previous peak in house prices before the era of record low interest rates in 2007, although mortgage costs as a percentage of average earnings were even higher then, at 37%.
First-time buyers face a typical property price of 5.4 times average earnings, down from 5.8 last year. However, overall mortgage costs have risen by 25% over the past year due to higher interest rates.
Kim Kinnaird, mortgages director at Halifax, said: “We don’t yet know what the ‘new normal’ looks like for mortgage rates and house prices over the longer-term. But we expect the market to rebalance as both buyers and sellers adjust their expectations to reflect higher costs and lower demand.”
