House prices are "more affordable" than this time last year when compared with UK wages, according to data from lender Halifax, but the market is being hit by the impact of rising interest on buyers' pockets.
Britain’s house price to income ratio had sat at 7.3 in June 2022 but following a rise in average wages, fell to 6.7 in the same month of this year, the lender said on Wednesday.
Though this would be welcomed by prospective buyers, “the overall affordability of housing costs for owners has been offset by the impact of rising mortgage rates”, Halifax said.
UK house prices peaked at £293,586 in June 2022, the lender explained, before dropping to £286,276 this year.
Average wages increased from £40,196 to £43,090 over the same period meanwhile, meaning the gap between house prices and incomes narrowed.
However, typical monthly mortgage costs have jumped from £1,020 to £1,249 over the past year, based on the average five-year fix, Halifax continued.
This means mortgage costs as a percentage of income have risen from 30% to 35%.
“Mortgage costs as a proportion of income are now comparable to those seen in 2007”, a year before the global financial crisis, Halifax mortgage director Kim Kinnaird pointed out.
She did reassure that banks do tougher affordability checks though, while the average loan-to-value on mortgages is significantly lower.
“We don’t yet know what the ‘new normal’ looks like for mortgage rates and house prices over the longer-term,” Kinnaird added.
“But we expect the market to rebalance as both buyers and sellers adjust their expectations.”
Five least affordable areas to live in the UK based on house price to income ratio:
- Westminster/City of London - Greater London - 16.0
- Kensington and Chelsea - Greater London - 15.7
- Mole Valley - South East - 13.2
- St Albans - Eastern England - 13.1
- Elmbridge - Greater London - 12.7
Five most affordable areas to buy in the UK based on house price to income ratio:
- Inverclyde - Scotland - 2.9
- Dumfries and Galloway - Scotland - 3.2
- East Ayrshire - Scotland - 3.3
- Hull - Yorkshire and Humberside - 3.3
- West Dunbartonshire - Scotland - 3.3