Amid all the doom and gloom of the Budget last week, there was something that looked remarkably like good news: UK housing is now more affordable than it has been for a decade.
The typical home for a first-time buyer costs 5.9 times the average earnings, according to numbers from Lloyds Bank released on Thursday, the lowest ratio since 2015.
It echoes what data from other major lenders, trade associations and government statistics are all showing: due to a combination of rising incomes and slow or stagnant price growth, housing affordability is improving. And quickly, too.
My calculation of the price-to-earnings ratio using ONS data, for all prices rather than just those for first-time buyers, shows it has fallen to 7.25 from a peak of 8.45 in August 2022.
While still well above their long-term average — between 1970-99, the ratio averaged 4.5 — this surely must be a cause for some celebration? Pop the champagne corks and let the church bells ring throughout the land. Christmas has come early!
Not so fast. I don’t want to sound like the Grinch, but I’m afraid the housing crisis isn’t over just yet.
Price-to-earnings ratios are useful measures of housing affordability — they give a quick overview that’s good for comparing affordability across and within countries. But there are some significant shortcomings, too.
The first is that they take no account of changes in mortgage rates — where lower rates enable buyers to borrow more and purchase at a higher price-to-earnings ratio. That means the historic 4.5 average isn’t comparable to current levels. The second, is that they’re based on average earnings and it turns out that first-time buyers’ incomes are anything but average.
The distribution of wages here matters, since earnings have been rising faster for lower earners while higher earners — who are more likely to be first-time buyers — have underperformed.
UK Finance data shows the average gross income of mortgaged first-time buyers was £62,700 in September 2025, around two-thirds higher than the average weekly earnings used to calculate our price-to-earnings ratio chart.
Mostly, this is because the UK Finance data is based on borrowers’ income, and most people borrow with a spouse or partner to buy their first home. This wasn’t always the case, obviously: the FCA says that, this year, around 60 per cent of all borrowers (first-time, movers and remortgages) had dual incomes. Back in 2007, it was 50 per cent. But the really big increase probably happened at some point since the late 1970s, before that, women still struggled to get mortgages.
But having dual incomes is clearly not the only factor. In cheaper markets, such as north-east England, it may be enough to explain the discrepancy between the average first-time buyer incomes and the area’s average earnings. But where homes are more expensive, there’s a substantial difference between even single borrower incomes and average earnings.
In south-east England, the typical single-income first-time buyer earned 30 per cent more than average; in London, they earned 55 per cent more.
Perhaps this shouldn’t come as a surprise; UK house prices have been extortionate for the best part of 25 years. But since the financial crisis, the focus has been on the size of the deposits buyers need, with the Bank of Mum and Dad providing a vital leg-up. Much less attention has been given to how first-time buyers’ incomes compare to their peers who are left renting.
There was good reason for this. If, like me, you managed to buy some time in the 10 years or so leading up to 2022 — I bought a house in Bath in 2013, when the price-to-earnings ratio was about 6.5 times — you benefited from record low mortgage rates.
I started on a rate of 3.3 per cent but eventually moved to a five-year fix at 1.59 per cent — which is crazy given that I didn’t shop around as much as I could have.
As a result, those who were able to buy typically had very low repayments as measured relative to gross income — for many, the cost of repaying a mortgage was nothing to worry about if you had the deposit to buy. And millions of older homeowners increasingly had no mortgages at all, as they had paid them off.
Unfortunately, that all changed in September 2022, when a different chancellor delivered an altogether more eventful — though technically a “mini”-Budget. Mortgage rates have fallen since their peak the following year, but are still above 4 per cent for most borrowers.
In fact, after more than a decade of low rates, we have got so hooked on cheap borrowing that as a nation we may have lost sight of how much of our incomes should be going on mortgage repayments.
When I did a quick search online, I saw Nationwide’s statistics for first-time buyers and nearly spat out my drink. Across the UK, it finds that first-time buyers are spending 34 per cent of their post-tax earnings on their mortgage; in London it’s 56 per cent.
After I calmed down, I realised these figures are based on average earnings for the whole economy, not those of people actually buying, repeating the same issues as we found in price-to-earnings ratios. (I also highly doubt you would pass Nationwide’s affordability tests if you needed to spend that much.)
In fact, the average for actual first-time buyers is 21 per cent of gross income across the country and 23 per cent in London. Nevertheless, these are not good numbers. They are more in line with what people pay during a housing bubble. And crucially, they do not show that homes are more affordable than in the past decade — quite the opposite.
The fact that they are lower than the 30 per cent that people pay in the private rental sector is, frankly, cold comfort.
And there are a couple of reasons why I’m worried this chart shows that housing affordability is not improving.
The first is that, despite the falls in mortgage rates over the past couple of years, the repayment ratio has remained stuck around these levels. As UK Finance has previously warned, this means that falls in mortgage costs are being used to increase buyers’ budgets and hence house prices, rather than reduce repayments. If rates fall in the new year — as many expect — I’d expect prices to start increasing again.
The second is that this is an average, and there are more worrying signs in the distribution. Research shows that a higher repayment ratio comes with more risk. The Bank of England recently warned that the share above 30 per cent increased quite sharply during the last monetary policy hiking cycle, which started in 2021. There’s also the risk that the increasing prevalence of higher loan-to-income ratios could make the situation worse.
All of this means affordable housing isn’t necessarily getting closer.
As I found in a report last year, even if we ignored the deposit barrier by allowing zero-deposit mortgages, most private renters have incomes that are too low to buy — and where they have higher incomes, they tend to live in more expensive housing markets where the gap between what they can afford and the market is even bigger.
In other words, anyone putting an affordable home on their Christmas list this year might be disappointed. You’d be better off asking for a cash injection from Mum and Dad — and a chunky pay rise from your boss.
Miracles do happen, I guess. Though perhaps not in this economy.
Neal Hudson is a housing market analyst
