House price affordability improves as mortgage costs rise
12:01 AM, 8th October 2026, 9 hours ago
Despite the gap between house prices and earnings narrowing, mortgage costs continue to rise, according to new research.
Data from the Lloyds affordability review shows the UK’s house price-to-income ratio has fallen from 7.6 to 7.3, its lowest level in 11 years.
However, higher interest rates mean monthly mortgage costs have increased by £57 over the past year, while saving for a deposit remains a significant hurdle for many prospective buyers.
Mortgages continue to increase
According to the data, the average UK house price rose by 0.5% over the past year to £299,131, while average earnings increased by 4.5% to £40,790.
However, despite the improvement in affordability relative to earnings, higher borrowing costs mean average monthly mortgage repayments have risen from £1,100 to £1,157 over the past year.
The research also shows that the gap between Britain’s most and least affordable housing markets has narrowed slightly, with the biggest improvements generally recorded in regions where house prices were previously highest relative to earnings.
The South East recorded the largest improvement, with the average home now costing 9.1 times annual earnings, down from 9.7 a year ago. Greater London followed, with the ratio falling from 10.9 to 10.3, while Eastern England improved from 8.7 to 8.2 and the South West from 8.2 to 7.7.
Despite these improvements, London and the South East remain the two least affordable regions.
By comparison, areas with lower house price-to-earnings ratios generally saw smaller changes. The ratio fell from 5.1 to 5.0 in the North East, while Scotland remained broadly unchanged at 5.3. In the North West, it fell from 6.5 to 6.3, while Yorkshire and the Humber saw a reduction from 6.0 to 5.8.
Affordability remains stretched
Andrew Asaam, mortgages director at Lloyds, said: “There are some encouraging signs for people looking to buy a home. Wages have continued to rise while house prices have remained relatively stable, helping to narrow the gap between earnings and house prices.
“However, affordability remains stretched for many households. Mortgage rates are higher than they were a year ago and saving for a deposit continues to be one of the biggest barriers facing first-time buyers.
“Buyers may have more options than they realise, including mortgages designed for those with smaller deposits. While these won’t be right for everyone, they can help some buyers take their first step onto the housing ladder sooner.”
Mr Assam added: “Where you buy continues to make a huge difference to affordability. Our recent research showed homebuyers can save 28% on average by looking just next door to the UK’s priciest postcodes.
“For first-time buyers in particular, a small shift in location could make a big difference – not just in getting on the ladder, but in what kind of property is within reach.
“Many parts of Scotland and northern England continue to offer some of the best value relative to local earnings. For buyers with flexibility over where they live, that can make a meaningful difference to what they can afford.”
Securing a manageable mortgage
The data also reveals for first-time buyers, the typical property price was broadly stable over the last year, rising by just 0.3% from £238,875 to £239,681. With earnings growth outpacing house price inflation, the house price to earnings ratio for a first home fell from 6.1 to 5.9 – the lowest since 2015.
However, saving for a deposit remains a key challenge. A typical first-time buyer still needs to save almost £24,000 for a 10% deposit
Ian Harris, President of NAEA Propertymark (National Association of Estate Agents) said: “For first-time buyers in particular, the challenge is not simply finding a property that looks affordable relative to earnings, but securing a manageable mortgage, raising a deposit and finding a home that works for everyday life. The latest figures show progress, but affordability remains a careful balancing act for many households.”
Affordable parts of the country see stronger growth
Tom Bill, head of UK residential research at Knight Frank, said: “The house price gap between London and the rest of the country continues to narrow as more affordable parts of the country see stronger growth. Eventually, demand will gravitate back towards the capital and south-east England when the discount gets small enough, re-starting the cycle.
“The recent mortgage rate spike has only just begun to hit, which will keep a lid on activity and prices for the rest of this year, something that will affect highly-leveraged borrowers, like first-time buyers, hardest.”
