New research from Lloyds shows the average UK home now costs 7.3 times annual earnings, down from 7.6 a year ago. This is the lowest house price-to-earnings ratio since 2015.
The improvement reflects a widening gap between wage growth and house price inflation.
Average earnings rose by 4.5% over the past year to £40,790. By comparison, the average property price increased by just 0.5% to £299,131.
First-time buyers have also seen a modest improvement. Their average house price-to-earnings ratio fell from 6.1 to 5.9, with property prices rising by just 0.3%.
However, the figures tell only part of the story. Higher mortgage rates mean buyers are paying more each month, despite the improvement in affordability relative to earnings.
Average monthly mortgage repayments have risen from £1,100 to £1,157 over the past year, an increase of £57.
Southern England records biggest improvement
The greatest improvements in affordability were generally concentrated in the country’s most expensive housing markets.
The South East recorded the largest reduction in its house price-to-earnings ratio, falling from 9.7 to 9.1.
London followed, with its ratio dropping 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 changes, London and the South East remain the UK’s least affordable regions.
Elsewhere, improvements were more modest. The North East’s ratio edged down from 5.1 to 5, while Scotland remained broadly unchanged at 5.3.
The North West recorded a fall from 6.5 to 6.3. Yorkshire and the Humber improved from 6 to 5.8.
Northern Ireland bucked the national trend. House prices rose by 7.4%, outpacing earnings growth of 3.7%. As a result, its house price-to-earnings ratio increased from 5.8 to 6.
Mortgage costs remain a hurdle
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.”
Tom Bill, head of UK residential research at Knight Frank, said the narrowing price gap between London and the rest of the country could eventually bring buyers back to the capital and the South East.
He commented: “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.”
