Halifax: homebuying affordability improves but challenges remain

Buying a home has become slightly more affordable relative to average incomes, according to the UK’s biggest mortgage lender.

Halifax said the average house price to earnings ratio had eased to 6.55, down from 6.62 last year.

Those trying to buy a home will be pleased to hear that affordability has improved. Wage growth has outpaced house price inflation, with pay increasing by 5%, compared to a 3.8% rise in house prices over the past year.

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Earlier this month, Halifax said that house prices had reached a record high, with a typical property now costing £293,999.

Lower interest rates have also led to lower mortgage rates, with mortgage costs as a percentage of income falling from 33% to 29% over the past year.

"Housing affordability has improved over the past year, thanks to stabilising property prices, strong wage growth, and easing interest rates. That’s great news for first-time buyers and existing homeowners looking to remortgage or move up the property ladder,” comments Amanda Bryden, head of Halifax Mortgages.

However, she admits that buying a property “remains a significant challenge for many, with prices still near record highs and interest rates likely to stay higher than we’ve been used to over the past decade”.

According to Halifax, Kingston upon Hull in East Yorkshire is the most affordable area to buy a home, while Elmbridge in Surrey is the least affordable area.

We dig into the data, reveal which areas are the most affordable and least affordable, and look at the challenges that lie ahead for homebuyers.

How is the affordability ratio calculated?

The house price to earnings ratio has been steadily reducing since it reached a record high of 7.24 in the summer of 2022.

The ratio is based on Halifax’s house price index and compares typical house prices to average earnings across the UK, as recorded by the Office for National Statistics.

House prices rose by 3.8% when comparing Q3 data for 2023 and 2024. Meanwhile, annual earnings for full-time workers climbed by 5% to an average of £44,667.

It means the ratio has fallen from 6.62 in Q3 last year to 6.55 in Q3 2024, and buying a home has become slightly more affordable relative to income.

At the same time, mortgage costs have fallen in each nation and region of the UK over the last year, according to data from the Bank of England.

Monthly new mortgage costs have dropped by an average of 9%, from £1,116 to £1,060. That’s based on the typical monthly cost of a five-year fixed-rate mortgage, with a 30-year term and a 25% deposit.

Halifax said that based on the average UK full-time income, that equates to mortgage costs as a percentage of income falling from 33% to 29%, its lowest level in over two years.

Most and least affordable areas to buy a home

The North of England accounts for many of the most affordable areas. Kingston upon Hull in East Yorkshire is crowned the most affordable area of the UK, with a house price to earnings ratio of 3.15. This is followed by Burnley and Blackpool in the North West, with ratios of 3.20 and 3.34 respectively.

Elmbridge in Surrey is the least affordable local area by some distance, with a house price to earnings ratio of 17.54. St Albans in Hertfordshire is in second place with a ratio of 13.96, followed by Kensington and Chelsea in London at 13.93.

However, Halifax says that Elmbridge also saw the biggest improvement in affordability, falling from 19.46 in 2023.

In contrast, the biggest deterioration in affordability was recorded in Oxford in the South East, rising from 8.37 to 10.26.

Bryden comments: “While national house price figures often grab the headlines, it’s crucial to remember that the property market varies significantly at a local level. The most sought-after areas tend to have the highest prices, and local developments, such as improved transport links or job opportunities, can all help to drive demand.

"For home buyers and movers, it often pays to be flexible with the location you are looking at, as exploring nearby neighbourhoods can sometimes offer better value for money.”

Challenges ahead for homebuyers

Despite the positive picture painted by the data, the figures only run until the end of September, and experts warn that affordability may have decreased since then.

Tom Bill, head of UK residential research at the estate agents Knight Frank, comments: “Affordability pressures relented this summer but have increased since the Budget as the government borrows more and inflationary risks intensify. We expect house price growth and transaction volumes to moderate as it again becomes impossible to agree a fixed-rate mortgage deal starting with a three.”

Karen Noye, mortgage expert at the wealth manager Quilter, warns that “house prices are likely to inflate by the surge of first-time buyers rushing to beat the stamp duty holiday deadline following the changes at the Budget, leaving affordability under pressure”.

She adds: “While affordability has improved slightly over the past year, this progress remains fragile. Wage growth may falter in the face of the government’s proposed Budget changes, particularly around employer National Insurance Contributions (NICs), which could constrain businesses’ ability to deliver meaningful pay rises.

"Without robust wage increases, any affordability gains could quickly evaporate, particularly given the persistent supply and demand issues plaguing the UK housing market.”