Subdued house price growth and modestly lower mortgage rates have helped boost affordability across Britain, new findings suggest.
The price of a typical home is roughly 5.75 times average income, a ratio ‘well below’ the all-time high of 6.9 recorded in 2022, Robert Gardner, chief economist at Nationwide said.
The house price to income ratio is the lowest it has been for more than a decade, according to Britain’s biggest building society.
But the current house price to earnings ratio is still above the long-run average of 4.8.
The interest rate on a typical five-year fixed-rate mortgage is, according to Nationwide, around 4.3 per cent for a borrower with a 25 per cent deposit.
This is still three times more compared to the all-time lows of autumn 2021, but well below the highs of 5.7 per cent reached in late 2023.
Riz Malik, director at R3 Wealth, told Newspage that house prices are likely to continue rising gradually.
He said: ‘House prices are still marching on and with the possibility of lower rates and lenders loosening criteria they should continue to grow steadily.’
Iain McKenzie, chief executive of the Guild of Property Professionals, said: ‘For sellers, realistic pricing is crucial to capture buyers’ attention in a more competitive landscape.
‘For buyers, the combination of more choice and the likelihood of further mortgage rate improvements creates a compelling window of opportunity.’
Emma Jones, managing director at When the Bank Says No, said: ‘There will be high-fives among aspiring homebuyers around the country as homes become slightly more affordable.
‘The price of a typical home is now around 5.75 times average income, and while this is still high, it’s considerably better than what it was after the pandemic.’
She added: ‘Given that we’re seeing a lot more lenders competing on affordability, more doors will hopefully be opened for aspiring homebuyers.
‘Yes, there are still headwinds but any improvement in affordability is a small win for buyers.’
What’s happened to house prices?
Nationwide’s latest House Price Index showed house prices increased by 0.6 per cent monthly baus on average in July, following a 0.9 per cent fall in June.
The annual rate of house price growth accelerated to 2.4 per cent in July, from 2.1 per cent in June, Nationwide said. This took the average UK house price to £272,664, against just over £271,000 in June.
Robert Gardner, Nationwide’s chief economist, said: ‘Looking through the volatility generated by the end of the stamp duty holiday, activity appears to be holding up well.
‘Indeed, 64,200 mortgages for house purchase were approved in June, broadly in line with the pre-pandemic average, despite the changed interest rate environment.’
Gardner said that despite wider economic uncertainties in the global economy, underlying conditions for prospective buyers remained solid.
He said: ‘Unemployment remains low, earnings are still rising at a healthy pace, household balance sheets are strong and borrowing costs are likely to moderate a little further if (the Bank of England base rate) is lowered further in the coming quarters as we, and most other analysts, expect.
‘Providing the broader economic recovery is maintained, housing market activity is likely to continue to strengthen gradually in the quarters ahead.’
Mark Harris, chief executive of mortgage broker SPF Private Clients, said: ‘Lower mortgage rates, with the expectation of more reductions to come, are giving the market impetus and putting borrowers in a stronger position when it comes to negotiating their property purchase. This, in turn, is keeping prices in check.
‘With the markets expecting a further rate reduction next week, we could be in for a busy autumn. Lenders continue to trim their mortgage rates, while easing of mortgage lending rules should also enable borrowers to take on bigger mortgages in coming months.’
This week, HM Revenue and Customs reported that house sales rose 13 per cent month-on-month in June.
Across Britain, it estimated that 93,530 home sales took place during the month, which was 1 per cent higher than in June 2024.
Recent Bank of England figures show mortgage approvals for house purchases have ticked upwards, with around 64,200 approvals made to home buyers in June, representing the highest figure since March this year.
Jeremy Leaf, north London estate agent and a former RICS residential chairman, said: ‘The “up a bit” in prices following last month’s “down a bit” is hardly surprising given the considerable overhang of available property in most price ranges.
‘But sufficient price growth is essential to ensure there continues to be a good supply of listings and offers.
‘On the ground, transactions are holding together relatively well. As a result, 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.’
The Bank of England will be voting on whether or not to increase or cut interest rates next Thursday.
Tom Bill, head of UK residential research at Knight Frank, said: ‘Sticky inflation means a probable cut by the Bank of England next week may only be followed by one more this year. Despite a modest uptick in July, high levels of supply are keeping a lid on prices and means it is still very much a buyers’ market.’
Karen Noye, a mortgage expert at Quilter, said: ‘All eyes will be on the Bank of England next week and what it decides to do with interest rates.
‘It was thought that a rate cut was fairly certain on Thursday, but recent inflation data coming in higher than expected may just temper things slightly and force buyers to wait.
‘Should the Bank of England follow through with a rate cut, however, that will help support the buyers.’
Recent data from Zoopla showed a stamp duty raid has dragged the vast majority of buyers into paying the hated tax on property purchases.
Zoopla claimed 83 per cent of buyers would pay stamp duty if they bought a home today, compared to 49 per cent before April, when the tax rules changed.
