The Unaffordable Dream: UK House Prices Remain Out of Reach for Many

As the UK’s largest building society, Nationwide has sounded the alarm on the state of the housing market. Despite a slight increase in prices in June, the reality is that house prices remain unaffordable for many people. The impact of higher mortgage costs is being felt across the country, with borrowers facing monthly payments that are equivalent to a staggering 37% of their take-home pay.

The UK housing market is still struggling to recover from the pandemic.

According to Robert Gardner, Nationwide’s chief economist, housing affordability is still stretched. He notes that a borrower earning the average UK income buying a typical first-time buyer property with a 20% deposit would have a monthly mortgage payment equivalent to 37% of take-home pay – well above the long-run average of 30%. This is a far cry from the days when mortgage payments were a manageable 20-25% of income.

The situation is not helped by the fact that housing market activity has been broadly flat over the last year. The total number of transactions is down by around 15% compared to 2019 levels, with mortgage transactions down even more (nearly 25%). This is a stark contrast to the volume of cash transactions, which is actually around 5% above pre-pandemic levels.

Mortgage rates have risen significantly since the pandemic.

Gardner attributes the decline in mortgage transactions to the impact of higher borrowing costs. He notes that the interest rate on a five-year fixed-rate mortgage for a borrower with a 25% deposit was 1.3% in late 2021, but has since risen to around 4.7%. This increase has priced many people out of the market, making it even harder for them to get on the property ladder.

As someone who has been following the UK housing market for years, I am not surprised by these findings. The reality is that the UK housing market is broken, and it will take more than just tinkering around the edges to fix it. We need a fundamental rethink of how we approach housing policy, one that prioritizes affordability and accessibility over profit and speculation.

The UK needs a fundamental rethink of its housing policy.

Until then, the dream of homeownership will remain out of reach for many people. It’s time for policymakers to take action and make housing a priority. The future of the UK’s housing market depends on it.