The latest information on the housing market from the Office of National Statistics (ONS) reveals that becoming a homeowner is unsurprisingly very difficult. The average earnings have doubled since 1997, but the average house price has increased by 4.5 times. Homes in England and Wales have not been affordable for hopeful home buyers in over two decades. The last time homes were considered affordable when comparing the ratio of earnings to the average house price was 2002.

According to the ONS, the affordable ratio is five times the earnings to the average house price. In 2002, five years earnings were £102,810 with the average house price being £104,000. The ratio that year was 5.12 in England. For 2023, the ONS affordability ratio revealed a home buyer could expect to pay 8.3 times their annual earnings to purchase a home at the average house price. The ratio for 2022 was 8.5 times earnings for an average priced home.

For Wales, the 2023 ratio calculated an average house price would cost a home buyer 6.1 times their annual earnings.

The London ratio for 2023 was above 12 making it one of the most expensive areas to purchase for a home buyer. Breaking down the areas in London for the affordability ratio for Kinsington and Chelsea, the data revealed a fall in the ratio due to the average house price declining in 2023 from the peak recorded the previous year. The affordability ratio then also declined from 39.8 to 34.2, but it is still the least affordable area to buy a house.

The ONS data revealed newly built homes in England and Wales are less affordable with a ratio of 10.3.

The housing market recently experienced a boost due to the lower interest rates offered by lenders. Mortgages were unexpectedly lower due to a competitive lending market that had emerged in February with some offers below the Bank of England’s standard base interest rate of 5.25%. This triggered some sellers to increase their asking prices when the average house price had barely dropped from pandemic record-breaking prices. 

Currently, buying a home is a financial strain for many home buyers, especially due to the impact years of inflation have had on their budget. Saving for a deposit is hard and many hopeful home buyers have turned to friends and family for financial help. Despite lower interest rates being offered by lenders, mortgage rates are still higher than just two years ago when house prices were only slightly higher than they are currently.

Besides inflation, expensive interest rates, and remaining high house prices, another barrier to climbing onto the property ladder is a lack of supply in the housing market. This is especially true for homes considered starter homes or those most likely to be desired by first time home buyers. 

There is expectation the Bank of England’s Monetary Policy Committee (MPC) will cut the standard base interest rate this year and possibly more than once. This would help to push interest rates lower and help home buyers with affordability. It might not be the depth of cuts truly needed for home buyers to better afford a property but could prove to be helpful if house prices remain stable or decline. 

If the MPC cuts the rate by three times at the expected 0.25% level in 2024, the base rate would lower from 5.25% to 4.75% by the end of the year.

The March meeting of the MPC ended with the majority of members voting to hold the rate steady for the fifth consecutive meeting. It was the first time in two years no member voted for a rate hike, but one of the nine members did vote for a rate cut. The rate is at a 16-year-high but is not expected to stay at that level by the end of summer.

The next meeting of the MPC will be held 9 May, and no meeting is scheduled for April, with the earliest meeting a cut to the base rate is forecasted to happen being June. The May meeting might not offer a cut to the base rate, but the tone of the meeting will signal how soon a cut might occur and affordability for home buyers might increase.