Strong earnings growth and a more subdued property market are driving an increase in housing affordability, according to new analysis.
New research from Yopa looked at the UK housing market over the last decade and how the cost of homeownership has changed as well as how this has impacted affordability for buyers when taking earnings into account.
Yopa’s Housing Market Affordability Review explored how the income to house price ratio for the average UK homebuyer has changed over the last decade, based on both the average UK earnings and the average UK house price and found that, today, the average UK house price (£268,087) sits at 8.5 times the average gross UK earnings of £31,602.
Whilst this ratio is higher when compared to a decade ago, when it sat at 8 times income, the analysis shows that UK homebuyers have been benefitting from an increased level of affordability in recent years.
In fact, since 2014, the house price to income ratio has been largely increasing year on year, peaking at 9.5 times income in 2022. However, since then it has fallen over the last two consecutive years, to 8.7 in 2023 and then to the 8.5 seen in 2024.
As it stands, there have been just two years over the last 10 when the income to house price ratio was lower than it is today - 2014 (8 times income) and 2015 (8.4 times income).
The reason for this improving level of homebuyer affordability has been both due to an underperforming property market and stronger earnings growth.
Just four of the last 10 years have seen the annual rate of earnings growth outpace house price increases and two of them have come over the last two years.
In 2023, house prices fell by -2.7%, whilst wages climbed by 6.3%, and whilst house prices climbed by 4.6% in 2024, the annual rate of earnings growth sat at 7.1%.
This is a reversal of the trend seen over the majority of preceding years, with the worst being 2021 when the average earnings increased by just 0.4% versus a 7.3% annual jump in the average value of a home.
“House price growth has been largely consistent over the last decade but whilst it’s one of the key contributing factors to the affordability picture, higher house prices don’t necessarily mean that homebuyers are worse off," explained CEO of Yopa, Verona Frankish, "Earnings growth is also a driving factor and, in recent years, homebuyers have seen housing affordability worsen due to house price growth far outpacing the rate of increase seen with respect to the average income.
She adds, "The good news is that over the last two years, this balance has swung back in favour of homebuyers, with consistently strong earnings growth and a subdued property market helping to re-level the playing field.
"So whilst the average buyer still requires 8.5 times their income to cover the average cost of a home, this ratio has reduced over the last two years.”