House prices showed robust growth during the month of July
Improving Housing Affordability in the UK
After a decade of rising house prices and stagnant wages, there's some good news for potential homebuyers in the UK. The house price to average earnings ratio, a measure of housing affordability, has fallen to its lowest point in over 10 years, reaching around 5.75.
This improvement in housing affordability is due to a combination of factors. Easing of mortgage lending rules is expected to enable borrowers to take on bigger mortgages in coming months. Lenders are trimming their mortgage rates, making it more affordable for people to borrow. Additionally, an improvement in the availability of higher loan-to-value mortgages is also contributing to the easing of deposit constraints for potential buyers.
The current house price increase may put borrowers in a stronger position when negotiating their property purchase. After deteriorating in the wake of the pandemic, housing affordability has been steadily improving. House prices rose by 2.4% year-on-year in July, up from 2.1% in June, but the current house price increase is keeping prices in check.
However, the Bank of England's decision to hold rates offers limited reassurance, according to Daniel Austin, CEO and co-founder at ASK Partners. Persistently elevated fixed mortgage rates are still delaying meaningful relief, he states.
The construction sector is grappling with soaring build costs, planning bottlenecks, and a chronic shortage of skilled labor. Despite these challenges, investors and developers remain motivated by the enduring supply-demand imbalance, particularly in resilient sectors such as co-living and build-to-rent.
One such example is Platform4, considered a 'winning blueprint' for placemaking. Meanwhile, plans for four new flats in St Peter Port have been rejected, highlighting the complexities in the UK's housing market.
For investors seeking stability amid global uncertainty, UK real estate debt continues to stand out. Despite the improving housing affordability, growth in property prices remains subdued due to high borrowing costs, according to Austin.
In conclusion, while the house price to average earnings ratio has improved, there's still work to be done to make housing more affordable for the average UK resident. The easing of mortgage lending rules, lower mortgage rates, and higher loan-to-value mortgages are steps in the right direction, but the challenges faced by the construction sector and high borrowing costs need to be addressed to ensure sustainable growth in the UK's housing market.
[1] House Price Index, Land Registry, UK Government. (n.d.). Retrieved from https://www.gov.uk/government/statistics/uk-house-price-index-latest-estimates-for-july-2024
[2] ONS (Office for National Statistics). (2025). House price statistics for the UK: April 2025. Retrieved from https://www.ons.gov.uk/economy/inflationandpriceindices/bulletins/housepriceinflation/april2025
- To further improve housing affordability in the UK, investing in placemaking initiatives, such as Platform4, could play a significant role in increasing the supply of affordable housing.
- Finance institutions and real-estate developers should collaborate to find solutions for the issues plaguing the construction sector, including soaring build costs, planning bottlenecks, and a chronic shortage of skilled labor, to ensure a sustainable growth in the housing market.
- Although the growth in property prices has been subdued due to high borrowing costs, increasing the availability of lower mortgage rates and higher loan-to-value mortgages could help make the UK's housing-market more accessible and financially feasible for potential buyers.
