The gap between house prices and earnings has narrowed to its smallest level in 11 years, as wage growth continues to outpace house price inflation, according to Lloyds.
The research shows the average UK home now costs 7.3 times average annual earnings, down from 7.6 a year ago and the lowest level since 2015.
Average house prices rose by just 0.5% over the past year to £299,131, while average earnings increased by 4.5% to £40,790.
However, the improvement in the house price-to-earnings ratio has not translated into lower mortgage costs. Average monthly mortgage repayments have risen from £1,100 to £1,157 over the past year as borrowing costs have increased.
Andrew Asaam, mortgages director at Lloyds, said the figures provided “some encouraging signs” for people looking to buy, but warned that affordability remained stretched for many households.
“Wages have continued to rise while house prices have remained relatively stable, helping to narrow the gap between earnings and house prices,” he said.
“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.”
The picture is similar for first-time buyers, with the typical first home now costing less than six times average earnings.
The average first-time buyer property price increased by just 0.3% over the past year, from £238,875 to £239,681.
As earnings grew faster than house prices, the first-time buyer house price-to-earnings ratio fell from 6.1 to 5.9, also its lowest level since 2015.
But raising a deposit remains a significant hurdle. A typical first-time buyer would still need to save almost £24,000 for a 10% deposit.
Average mortgage repayments for first-time buyers have increased from £1,100 to £1,150 a month over the past year. However, wage growth means mortgage payments continue to account for around 34% of average monthly income, unchanged from a year earlier.
For buyers who can raise a deposit, mortgage payments remain below average rental costs. Average monthly rent increased by 3.2% over the year, from £1,339 to £1,382.
That means the typical first-time buyer mortgage payment accounts for around 34% of income, compared with 41% for renters.
The narrowing affordability gap has been particularly noticeable in some of Britain’s most expensive housing markets.
The South East recorded the largest regional improvement, with the average home now costing 9.1 times earnings, compared with 9.7 a year ago.
Greater London followed, with its ratio falling from 10.9 to 10.3. Eastern England improved from 8.7 to 8.2, while the South West fell from 8.2 to 7.7.
Despite these improvements, London and the South East remain Britain’s least affordable regions.
More affordable parts of the country saw smaller changes. In the North East, the ratio fell from 5.1 to 5, while Scotland remained broadly unchanged at 5.3.
The North West saw its ratio fall from 6.5 to 6.3, while Yorkshire and the Humber improved from 6 to 5.8.
Northern Ireland was the only region or nation to become less affordable relative to earnings. House prices rose by 7.4%, compared with a 3.7% increase in earnings, pushing the ratio from 5.8 to 6.
There are still substantial differences between local housing markets, with some of the lowest house price-to-earnings ratios concentrated in Scotland and northern England.
Inverclyde and Aberdeen were the most affordable local authorities, with average homes costing 3.5 times earnings in both areas.
They were followed by Kingston upon Hull, Blackpool and Dundee, where homes cost around 3.6 times local earnings.
At the other end of the scale, Elmbridge in Surrey remained Britain’s least affordable local authority, with an average house price equivalent to 17.4 times earnings.
Kensington and Chelsea followed at 17.3 times earnings, while St Albans ranked third at 14.1.
Some traditionally expensive markets recorded particularly sharp improvements in affordability.
In Westminster, the ratio fell from 15.2 to 13.3, while Cambridge dropped from 11.4 to 10. Elmbridge fell from 18.7 to 17.4, while New Forest declined from 10.1 to 8.7.
By contrast, several areas that had previously been among the more affordable markets saw their ratios increase.
Rossendale recorded the largest increase, rising from 4.8 to 5.4, followed by Wrexham, which increased from 4.9 to 5.5, and Halton, which rose from 5.1 to 5.6.
Argyll and Bute increased from 4.6 to 5.2, while Chesterfield rose from 5.2 to 5.8.
Lloyds said the figures demonstrate the continuing importance of location when it comes to housing affordability.
Asaam said buyers could potentially make significant savings by considering neighbouring areas, particularly first-time buyers who have flexibility over where they live.
“Where you buy continues to make a huge difference to affordability,” he said.
“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.”
He added that many areas of Scotland and northern England continued to offer relatively low house prices compared with local earnings.
“For buyers with flexibility over where they live, that can make a meaningful difference to what they can afford,” he said.
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