Housing affordability creeps up amid wage growth and rate cuts
Housing affordability in the UK has slowly been improving amid slower house price growth than wage growth, as well as a fallback in mortgage rates.
House prices grew 2.4 per cent in the year to July, according to Nationwide’s latest house price index, while wage growth was five per cent.
The price of a typical UK home is around 5.75 times the average income – now well below the all-time high of 6.9 recorded in 2022 and currently the lowest in over a decade.
“After deteriorating markedly in the wake of the pandemic, housing affordability has been steadily improving,” Robert Gardner, Nationwide’s chief economist, said.
“Despite wider economic uncertainties in the global economy, underlying conditions for potential home buyers in the UK remain supportive,” he added.
The interest rate on a typical five-year fixed-rate mortgage is around 4.3 per cent for a borrower with a 25 per cent deposit.
This is still over three times the all-time lows prevailing in autumn 2021, but well below the highs of around 5.7 per cent reached in late 2023.
CEO of Yopa, Verona Frankish, said that the improvements in mortgage market affordability, as wall as government’s new Mortgage Guarantee Scheme, should “help ensure that buyer activity remains consistent and house prices continue to strengthen”.
Savills has said that more relaxed mortgage lending rules could see first-time buyer deals increase by a quarter in the next five years.
“However, it’s important to remember that the homebuying process remains challenging for many, and while market sentiment is positive, sellers must remain realistic when pricing for current market conditions if they wish to secure a sale,” Frankish said.
‘Overarching air of positivity’
Pundits expect house prices to grow steadily throughout the year, supported the easier access to the housing market.
“We can expect continued stability in house prices for the remainder of the year, as more buyers look to make their move,” director of Benham and Reeves, Marc von Grundherr, said.
“This overarching air of positivity has been driven by buyers returning with confidence,” he added.
Matt Thompson, head of sales at Chestertons, said that many estate agent feel that the property market now provides a “window of opportunity” as more properties are up for sale.
Jeremy Leaf, north London estate agent and a former RICS residential chairman, said that transactions are “holding together” on the ground.
“Looking forward, we expect to see a modest improvement all round, particularly if interest rates are reduced in the next month or so as widely expected, despite lingering concerns about the economy.”