Are House Prices Becoming More Affordable in England & Wales?

For the first time since COVID-19 upended the housing market, house prices are becoming a bit more affordable in England and Wales, at least on paper. Official figures show wage growth has finally outpaced property price rises, bringing affordability back to where it stood in 2019.

Yet before would-be buyers celebrate, painful mortgage rates mean many households still feel locked out of the market.

Wages Outstrip House Prices

According to the Office for National Statistics (ONS), the median-priced home in England last year cost £290,000, about 7.7 times the average full-time worker’s earnings. That’s down from the peak of 9.0 times earnings in 2021 and a notch lower than the pre-pandemic ratio of 7.9 in 2019.

What’s changed? Since 2021:

• House prices in England and Wales have inched up only 1%
• Average wages, meanwhile, have jumped 20%

That means, in theory, buyers now need to borrow less relative to their income. But theory doesn’t always match reality.

Mortgage Rates Are Still a Big Problem

Although the gap between earnings and house prices has narrowed, borrowing costs have shot up. At the start of 2020, mortgage rates loitered around 2%. Today they’re closer to 4-5%, meaning monthly repayments are much steeper than before the pandemic slammed into the world.

Experts say affordability squeeze has been slow to hit households, however, as many Britons are on fixed-rate deals secured during the ultra-low interest period. Sadly, that’s changing fast.

Huge swaths of households are due to come to the end of five-year fixed-rate deals later this year, analysts say. This means household bills would rocket at a time when budgets are already tight.

The struggle is even sharper for first-time buyers. Nationwide data shows that in late 2024, mortgage payments accounted for 37.7% of take-home pay, down from a peak of 38.4% but still far above the 27.7% seen in 2019.

Meanwhile, renters are dealing with their own crisis. Rents have leapt at a record pace, and new tenancies now cost 29% of gross income, up from 25.8% in 2019.

Conclusion

Experts suggest that if mortgage rates continue to ease, the boosted wage-to-price ratio could provide a platform for growth in home sales. That said, affordability today is worse than 20 years ago when the price-to-earnings ratio was much lower at 6.79.

The housing market is less unaffordable than it was at its 2021 peak. But it’s still a tough climb onto the property ladder for many, thanks a lot to higher rents and elevated mortgage costs.