Buying a home in London has become more affordable with wage rises outpacing sluggish house price growth, according to new data.
The proportion of earnings being swallowed up by monthly mortgage repayments has slid from 42.1 per cent in 2023 to 35.7 per cent this year, the Halifax reveals. This adjustment from £2,174 on average a month to £1,954 comes after a prolonged period of interest rate rises during a cost-of-living crisis, and political and economic uncertainty before and after the UK election.
With the November bank rate cut generally expected to be the second of many (albeit to come gradually), from five per cent to 4.75pc, mortgage terms should continue to become more favourable. If this is met with rising wages rather than rapidly rising house prices in the capital, the house price-to-income affordability ratio should continue to improve.
"London's property market has recently seen an uplift in activity which is fuelling a busier than usual winter [home sales] season. Buyers are feeling more confident amid lower interest rates and slightly more attractive mortgage products whilst more homeowners have put their property up for sale, giving house hunters a slightly larger pool to choose from," says Matt Thompson, head of sales at Chestertons.
"We have seen some sellers lowering their asking prices," Thompson concedes. This has kept house price growth at bay – which could also account for the improving affordability levels.
2024 Q3: Halifax House Price Index / ONS:
Region |
House Price |
Earnings |
Ratio |
Monthly mortgage |
% income |
|---|---|---|---|---|---|
Eastern England |
£333,042 |
£41,890 |
7.95 |
£1,207 |
35% |
East Midlands |
£241,873 |
£40,514 |
5.97 |
£877 |
26% |
Greater London |
£539,238 |
£65,628 |
8.22 |
£1,954 |
36% |
Northern Ireland |
£203,593 |
£39,984 |
5.09 |
£738 |
22% |
North East |
£171,338 |
£39,138 |
4.38 |
£621 |
19% |
North West |
£234,355 |
£38,899 |
6.02 |
£849 |
26% |
Scotland |
£205,718 |
£40,534 |
5.08 |
£746 |
22% |
South East |
£387,638 |
£43,264 |
8.96 |
£1,405 |
39% |
South West |
£303,747 |
£40,385 |
7.52 |
£1,101 |
33% |
Wales |
£224,119 |
£39,783 |
5.63 |
£812 |
25% |
West Midlands |
£255,148 |
£44,724 |
5.70 |
£925 |
25% |
Yorkshire & Humber |
£210,116 |
£38,780 |
5.42 |
£761 |
24% |
UK average |
£292,508 |
£44,667 |
6.55 |
£1,060 |
29% |
London prices still nearly double the UK
However, homes in London and the South East remains strikingly more expensive than any other regions of the UK. The capital still records the highest average house price of £539,238 and whereas the proportion of mortgage payment is 35.7 per cent on average this year, the UK average is 28.5 per cent.
Affordability levels in the South East are even more stretched at 39 per cent, according to the Halifax data based on their customers. This is not because house prices are higher in the commuter belt but because home buyers in London tend to have higher earnings simply to be able to enter that market.
Despite London weighting on wages, house prices in this pocket of the country are disproportionately higher than elsewhere. In the Halifax ranking of the most unaffordable places in the country, all of the top 10 are in London, the South East and the Greater London commuter belt.
Elmbridge 17.5 (house price to earnings ratio)
St Albans 14
Kensington and Chelsea 13.9
Waverley 13.5
Sevenoaks 13.1
Mole Valley 12.8
Windsor and Maidenhead 12.5
Hertsmere 12.1
Guildford 11.5
Epping Forest 11.5
First-time buyers rush to beat stamp duty deadline
For first-time buyers affordability levels are set to change again come April when their stamp duty exemption changes from a threshold of £425,000 to £300,000, rendering it an irrelevant tax break for young Londoners. Research from Rightmove shows that only eight per cent of homes in the capital are valued at less than £300,000.
As a result, first-time buyer activity levels have picked up after the autumn Budget. New analysis from Rightmove, also released this morning, shows early signs of first-time buyers rushing to beat the stamp duty deadline of 1 April 2025 in the higher-priced areas of England. Before the Budget, first-time buyer demand in London was 28 per cent ahead of last year, now it has risen to 31 per cent.
Given it takes 51 days from offer to completion, the likelihood that first-time buyers can start the buying process now and beat the stamp duty deadline is slim and despite any prospective interest rate falls, the deposit hurdle in London is still insurmountable for most wannabe first-time buyers. Therefore, these heightened activity levels look to be temporary.
Estate agent warns against interest rate cut optimism
In fact, analysts at Knight Frank caution against buyers relying too heavily on falling interest rates. The firm forecasts transaction levels to slow again next year.
"Affordability pressures relented this summer but have increased since the Budget as the Government borrows more and inflationary risks intensify," says Tom Bill, head of UK residential research at Knight Frank. "We expect house price growth and sales to moderate as it again becomes impossible to agree a fixed-rate deal starting with a three," he explains.
Sadiq Khan's plans to start 6,000 rent-controlled homes for key workers by 2030 goes some way to begin to tackle the deposit affordability crisis. City Hall says the Mayor's plans will save key workers £600 in rent a month and enabling some of them to manage to save for a deposit to eventually buy their own place.
However, the developer community is seeking government intervention and first-time buyer support to incentivise them to build more homes to meet demand.
"This news of wage rises and marginal falls in interest rates is welcome, but fundamentally the housing market seems stagnant. The only way to get things moving is to help first-time buyers onto the ladder with support, such as genuine availability of 95 per cent mortgages for both houses and apartments (for new build and second-hand homes) or a Help to Buy type of deposit-boosting product," says Bob Weston, founder of Weston Homes.
