Stagnant wage growth fails to keep pace with property costs
The financial strain of monthly mortgage repayments has reached its highest point since the 2008 financial crisis, according to analysis from INTEREST by Moneyfacts. The findings come amid subdued house price growth and ongoing discussions about property tax reform.
Recent data show that those on average incomes who have managed to secure a mortgage in recent years are now allocating nearly half of their gross salary to monthly repayments. This marks the most significant affordability challenge for borrowers since the global financial downturn of 2008.
At the start of the 2000s, the typical house price stood at £78,000—about five times the average annual wage of £15,800. By 2025, this ratio has widened, with the average home costing £269,000, or roughly seven times the average salary of £37,600. This figure exceeds standard lending multiples used by many lenders.
Since 2000, average earnings have increased by 237%, while house prices have surged by 345%. If wage growth had matched the pace of house price inflation, the average UK salary would now be over £54,000. The rise in property values has also outstripped the inflation of everyday items; for example, a loaf of bread would cost £2.28 and a dozen eggs £4.73 today if they had kept pace with house prices.
Borrowers able to secure one of the most competitive two-year fixed rates at 90% loan-to-value—currently around 4.20%—could reduce their monthly payments by approximately £100 compared to the average rate of 5.12% recorded in June. Nevertheless, these payments would still represent about 38% of gross monthly income, a proportion similar to that seen in June 2018.
“Affordability may have eased a touch over the past 12 months, but buying a home in 2025 is still too much of a financial stretch for many,” said Adam French, head of news at Moneyfacts. “Putting aside the not inconsiderable tasks of affording rapidly rising rent costs and saving a sizeable deposit, monthly mortgage repayments are eating up almost half of gross earnings – the toughest burden since the 2008 financial crisis.
“Years of ultra-low borrowing costs, government incentives and a lack of housing supply have driven house prices far ahead of wages, leaving many buyers caught between high prices, expensive borrowing and strict lending rules. It all means that a typical borrower today will need to take a mortgage over a 50-year term to keep their repayments to a more affordable 35% of gross monthly income.
“There remains an acute risk that the market could overcorrect or overheat depending on the future path of interest rates, inflation and wage growth despite a recent softening of house price growth. We now need a period of stability where modest house price growth allows incomes to catch up so the market can return to more sustainable levels that benefit homeowners, homebuyers and the wider economy. In the meantime, it may mean holding rates where they are until inflation is in check is what is needed to nip another boom-and-bust cycle in the bud.”
Mary-Lou Press, president of industry body NAEA Propertymark, said that with speculation circulating regarding potential changes to Stamp Duty in England and Northern Ireland, we need the government to focus on reviewing current rates and bands rather than targeting higher-value properties, as historically, reducing or removing property taxes has led to increased transactions, which in turn stimulates spending and drives broader economic growth.
“Alongside this, all governments throughout the UK need to meet their individual housing targets to increase the supply of homes and bring down property prices in the longer term,” she added.
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