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Interest rates are making UK homes less affordable, even as wage rises increase faster than house prices
visibility comment0 event November 6, 2026 timer 12:44
Mortgage payments are putting home ownership out of reach.
P.Cartwright/ShutterstockThe Bank of England’s decision to put interest rates up for the first time in over three years could be bad news for prospective homebuyers. Higher borrowing costs risk putting home ownership even further out of reach for many people.
But the numbers aren’t all bad.
Official figures show that annual earnings between 2021 and 2025 increased by 25%, while house prices in England rose by around 15%.
So if wages are going up faster than house prices, why does buying one remain so difficult?
The answer lies partly in the difference between the price of a property and the actual cost of buying it.
Over the past two decades, UK house prices have risen substantially relative to incomes. In the early 2000s in England, they were equivalent to about four times the average annual salary. By 2021, they were around nine times.
There has been some improvement since then. In 2025, the median home in England cost £300,000, equivalent to 7.6 times average annual full-time earnings of £39,300.
This is encouraging.
When earnings rise faster than house prices, people can potentially save towards deposits more quickly and end up borrowing less.
But what’s less encouraging is the fact that the usual comparison between house prices and earnings overlooks the monthly cost of mortgage repayments. And rising interest rates have made these repayments considerably more expensive.
Different rates
Consider a couple in which both partners earn the median full-time salary and want to buy a home in England.
In 2021, their combined annual earnings would have been approximately £62,900. If they bought a £250,000 property with a 10% deposit, they would have needed a £225,000 mortgage.
With an interest rate of 1.95% on that mortgage (widely available five years ago), their monthly repayments over 25 years would have been roughly £948, equivalent to 18.1% of their monthly income.
Five years later, things look quite different.
Adjusting for current figures, their combined earnings would have increased by 25% to £78,600, while the property’s value would have risen by approximately 15% to £287,500.
Despite this improvement in house affordability compared to earnings, their mortgage rate would now probably be around 5.65%. This means monthly payments of about £1,612 – 24.6% of their monthly income.
In other words, although earnings have grown faster than house prices, the proportion of income required to pay the mortgage has increased substantially.
Inflation adds another layer of economic pressure. For although earnings have increased, the rising cost of food, energy and transport leaves much less money available for mortgage repayments.
Costs rising
Higher mortgage rates also reduce borrowing capacity, as banks and other lenders assess applicants’ ability to meet repayments alongside their other financial commitments. As a result, some borrowers may qualify for smaller mortgages than they might expect.
These pressures are particularly significant for first-time buyers, who cannot rely on accumulated housing equity, and must often save for a deposit while paying substantial rents.
For a £300,000 property, a 10% deposit requires £30,000, excluding stamp duty, legal fees, or moving expenses. Even households earning good salaries may struggle to save this amount while meeting everyday living costs.
Research shows that this in turn creates a divide between those receiving family financial support and those relying on their own savings.
Higher borrowing costs widen this gap, delaying home ownership or pushing buyers towards smaller properties or cheaper, more distant locations. It can then delay decisions to start a family and limit opportunities to move elsewhere for work.
Despite these challenges, slower house price growth offers grounds for cautious optimism. A sustained period of modest house price growth, alongside stronger earnings, could gradually reduce the gap between property values and incomes.
But if mortgage rates remain high, improvements in property affordability may not translate into lower monthly repayments.
The government’s recent budget offers some relief through a proposed scheme to help first-time buyers with smaller deposits and lower mortgage costs.
Yet without a significant increase in housing supply, such support could just end up pushing up property prices. Making home ownership genuinely more accessible requires sustained income growth, affordable mortgages and increased housing supply.
Alper Kara does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.
Tags: Academic Journalism, The Conversation, The Conversation Academic News
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