The house price to income ratio has eased from its record high in June of last year to sit at 6.7 as of June 2023, research from Halifax has revealed.
The analysis, which was based on data from the Halifax House Price Index and compared typical house prices to average earnings across the UK, revealed that the ratio had fallen by 0.6 over 2023.
The cost of a typical UK house was found to be 6.7 times average earnings in June.
Halifax detailed that the cost of a typical UK home was £286,276 and the annual earnings of a full-time worker was £43,090 in 2023.
This was a fall on last year when the cost of a typical UK home was £293,586 and average annual earnings were £40,196, putting the ratio at 7.3, the highest (or least affordable) level ever recorded.
However, Halifax additionally explained that 2023’s ratio was still higher than the 6.2 that was recorded in early 2020.
The bank suggested this demonstrates the “continued legacy” of surging property price inflation over recent years.
It added that this was brought about by increased buyer demand during the pandemic, incentives such as the stamp duty holiday, and record low interest rates.
Halifax mortgages director, Kim Kinnaird, commented: “The sharp rise in interest rates over the last year has meant the sums now look very different for both homebuyers and those looking to a remortgage.
“Typical monthly mortgage payments are up by around a fifth, which is a big jump at any time, but particularly during a wider cost-of-living squeeze.”
Kinnaird additionally stated that savers should remember that “the preceding 15 years have been characterised by historically low interest rates”.
Additionally, Halifax revealed that typical monthly mortgage costs increased by 22 per cent over the past year, from £1,020 to £1,249.
This was based on the monthly cost of a five-year fixed rate mortgage, with 25-year term and a 25 per cent deposit.
Halifax added that this equates to mortgage costs as a percentage of income rising from 30 per cent to 35 per cent over the past year.
Compared with the start of 2020, on the same basis, the monthly cost of a typical mortgage has now increased by 65 per cent (from £731 based on an average interest rate of 1.7 per cent) when it made up 23 per cent of average earnings.
While the figures are "stark", Halifax pointed out that they are not without a modern precedent as, looking back to the previous peak in house prices in 2007, the house price to income ratio was 6.4.
However, the typical cost of a mortgage as a percentage of average earnings in 2007 was actually higher than today (37 per cent vs 35 per cent).
This was based on a 2007 average house price of £192,943, earnings of £30,262, a mortgage rate of 6.1 per cent and a monthly mortgage cost £941.
Kinnaird added: “Mortgage costs as a proportion of income are now comparable to those seen in 2007, despite the significant rise in house prices seen over the last decade and a half.
“Of course much has changed in the housing market and wider economy since then.
“Banks carry out much tougher affordability checks to make sure borrowers can manage repayments when rates go up, and the average loan-to-vale is considerably lower.”
tom.dunstan@ft.com
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