Falling rates and rising wages set to cut average payments towards 40% of income
Mortgage affordability in the UK could return to its most manageable level in almost five years if current trends in rates, wages and house prices continue, according to new modelling from INTEREST by Moneyfacts.
The analysis suggests that the share of gross income needed to service an average mortgage, which neared one half of pay in 2024, could decline towards about 40% to 41% of average earnings later this year, assuming typical mortgage rates settle in a range of 4.25% to 4.50%. This would take affordability back to conditions last seen in 2021.
INTEREST by Moneyfacts examined historic and projected mortgage costs and found that in June 2024 average monthly repayments reached 49.1% of a typical gross salary. By June 2025, this ratio had eased to 45.1%. On the current outlook for June 2026, the analysis indicates an affordability ratio of 40.7% if the average mortgage rate is 4.25%, rising to 41.8% at 4.50%.
For many households, this would mark a notable shift from the strain seen through 2023 and 2024, when rapid increases in borrowing costs pushed mortgage budgets to, or beyond, their limits.
Economic backdrop supports gradual improvement
The more positive trajectory is underpinned by expectations of steady wage growth, moderating house price inflation and lower headline inflation. INTEREST by Moneyfacts notes that employers are budgeting for average pay rises of about 3.2%. House price growth is forecast to slow to around 2.5%, while inflation is expected to move closer to the Bank of England’s 2% target.
Together, these factors could allow mortgage costs to fall back from recent peaks without triggering a renewed surge in property prices that would erode affordability gains, particularly for first-time buyers.
Risks of a return to ultra-low rates
Moneyfacts’ historic data also underlines the potential downsides of aggressively cutting interest rates. Periods of ultra-cheap borrowing have previously encouraged greater capital flows into the housing market, driving up prices faster than incomes.
In such environments, any short-term benefit from reduced monthly payments has often been offset by higher purchase prices and larger loan sizes, leaving new entrants to the market worse off once rates normalise.
The analysis argues that a more neutral Bank Rate can support borrowers while still offering a reasonable return to savers, helping to maintain more sustainable affordability and avoid another boom-and-bust cycle in house prices.
“Mortgage rates are easing, but the era of ever-cheaper borrowing is firmly behind us,” said Adam French (pictured right), head of consumer finance at Moneyfacts. “Many fixed rate lenders will have already factored forecast rates cuts into their product pricing to some extent and just how far mortgage rates will fall remains to be seen.
“However, mortgage affordability is moving in the right direction, and that will come as a real relief to borrowers who have endured a few really tough years.”
“The challenge for the Bank of England is balance between supporting borrowers, rewarding savers fairly, and avoiding the mistakes that made homes increasingly unaffordable in the past.”
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