UK House Prices Still Unaffordable for Many Despite Rising Wages

High mortgage rates and soaring bills make UK house prices unattainable for many, despite wage increases above inflation.

House prices in the UK continue to pose a significant challenge for many households, despite a rise in wages outpacing inflation for the average earner, according to a recent report by Nationwide. The country's largest building society noted a slight increase in prices in June, driven by higher mortgage costs, with a 0.2% month-on-month rise. Annual house price growth also accelerated from 1.3% in May to 1.5% in June, although prices remain approximately 3% below the peak reached in the summer of 2022. The average price of a UK home stood at £266,064 in June, as reported by Nationwide.

While house prices in the UK experienced a decline last year due to 14 consecutive interest rate hikes by the Bank of England, they have remained at historically high levels relative to earnings. Although prices began to rebound earlier this year, the housing market has been constrained by persistently high borrowing costs, making homeownership unattainable for many households. Mortgage rates continue to exceed the record lows seen in 2021, with rising costs outweighing the benefits of recent increases in average pay levels. Consequently, housing affordability remains a pressing issue, with a borrower earning the average UK income facing a monthly mortgage payment equivalent to 37% of take-home pay when purchasing a typical first-time buyer property with a 20% deposit – significantly higher than the long-term average of 30%.

Data from the Bank of England further revealed a slowdown in UK housing market activity in May, with mortgage borrowing amounting to £1.2bn, down from £2.2bn in April. Net mortgage approvals for house purchases also dipped slightly from 60,800 in April to 60,000 in May. On a positive note, average annual wage growth in the three months leading up to April stood at 6%, surpassing the rate of inflation, which retreated to the Bank's target of 2% in May after peaking at 11% in October 2022 – the highest level in four decades. Despite numerous government commitments since 2010, the average age of a first-time buyer in the UK has continued to rise, rents have surged, homelessness has more than doubled, and housebuilding targets have been consistently missed.

The UK housing market remains a complex landscape, with affordability issues persisting despite improvements in wage growth. As prices continue to rise and borrowing costs remain elevated, many households are finding it increasingly challenging to enter the property market.