Homes are more affordable but borrowers are being stretched by rising mortgage costs, says Halifax

Mortgage lender Halifax said this is down from a record high of 7.3 times average earnings last summer, when a UK home cost an average £293,586 and the average annual salary of a full-time worker was £40,196.

With the typical house price having now fallen to £286,276, while average earnings have risen to £43,090 due to strong wage growth amid the cost-of-living crisis, the house price-to-income ratio has fallen back sharply, according to Halifax figures.

But the group said it is still higher than the 6.2 times earnings ratio seen in early 2020 before the pandemic struck, while it added that soaring mortgage rates means housing affordability is still stretched.

Mortgage costs recently soared to 15-year highs on the back of a flurry of interest rate rises as the Bank of England looks to rein in painfully high inflation.

Halifax said: “While the narrowing gap between house prices and incomes will be welcomed by prospective homebuyers – and the housing market has been showing signs of resilience, with an uptick in activity recently – improvement in the overall affordability of housing costs for owners has been offset by the impact of rising mortgage rates.”

Average monthly mortgage payments have rocketed by more than 22 per cent over the past year, from £1,020 to £1,249, based on a typical five-year fixed-rate loan.

This means that mortgage costs as a percentage of income have shot up to 35 per cent from 30 per cent over the past year.

At the start of 2020, a mortgage made up 23 per cent of earnings.

Kim Kinnaird, mortgages director of Halifax, said: “The sharp rise seen in interest rates over the last year has meant the sums now look very different for both homebuyers and those looking to 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.”

The Bank has increased rates 14 times in a row to the current 5.25 per cent as it battles to bring inflation back to its 2 per cent target.

This is hitting first-time buyers particularly hard.

While housing affordability has improved to 5.4 times average wages, down from 5.8 times last year, mortgage costs now make up 36 per cent of earnings, up from 30 per cent a year ago.

Ms Kinnaird said: “We don’t yet know what the ‘new normal’ looks like for mortgage rates and house prices over the longer term.

“But we expect the market to rebalance as both buyers and sellers adjust their expectations to reflect higher costs and lower demand.”​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​