Lloyds: House affordability reaches its best level in 11 years

Pay has risen while house prices have barely moved, which should help buyers. Higher mortgage rates, however, are adding to their costs.

The gap between earnings and house prices is now at its smallest in 11 years, yet expensive mortgages continue to put pressure on buyers.

New Lloyds Bank research puts the average UK home at 7.3 times median earnings. That is down from 7.6 in 2025 and marks the lowest level since 2015.

Between the second quarter (Q2) of 2025 and Q2 2026, the average house price rose 0.5% to 299,131, according to Lloyds. Median earnings climbed 4.5% over the same period, reaching 40,790.

Moneyfacts reports that the average two-year fixed-rate deal reached 5.93% on 1 October, compared with 4.83% on 27 February - the day before US and Israeli strikes on Iran sent global oil prices sharply higher.

Lloyds estimated that the average monthly mortgage payment increased from 1,100 in Q2 2025 to 1,157 in Q2 2026.

Andrew Assam, Lloyds' mortgages director, said the picture has improved for some prospective buyers. Pay has kept rising while house prices have stayed fairly steady, narrowing the distance between earnings and property values.

Affordability remains difficult for many households, however.

First-time buyers see better affordability

Lloyds said first-time buyers' incomes have risen relative to house prices.

The bank reported that first-time buyers paid an average of 239,681 for a property in Q2 2026, up 0.3% from Q2 2025.

A first home now costs 5.9 times median UK earnings, compared with 6.1 times in 2025. That is the lowest ratio since 2015.

Lloyds said the deposit remains a major hurdle for first-time buyers. A 10% down payment typically means saving about 24,000.

Borrowing has also become more expensive: average monthly repayments rose from 1,100 in 2025 to 1,150 in 2026.

According to Lloyds figures, first-time buyers now spend about 34% of their income on mortgage payments. Renters spend 41%.

Helping more people buy their first home has become a priority for Prime Minister Andy Burnham, who recently announced the Your First Home scheme.

Under the equity loan scheme, first-time buyers can purchase a home with a 2.5% deposit, while the government provides a loan covering 20% of the price.

Affordability remains a problem in London and the South East

Lloyds research found that London and the South East are still the least affordable regions for homebuyers, with local house prices far outstripping median incomes.

Between 2025 and 2026, Greater London's house price-to-income ratio dropped from 10.9 to 10.3, while the South East's fell from 9.7 to 9.1. Both regions became more affordable.

The improvement was smaller in areas where house prices were already lower.

In the North East, the house price-to-income ratio edged down from 5.1 to 5.0. The North West saw a larger fall, from 6.5 to 6.3, while Yorkshire and the Humber dropped from 6.0 to 5.8.

Northern Ireland was the only UK region where housing became less affordable between 2025 and 2026.

House prices in the region climbed 7.4%, while median earnings rose only 3.7%. The average home now costs 6.0 times median earnings, up from 5.8 times last year.

Tom Bill, who leads UK residential research at Knight Frank, said that house prices outside London are rising faster, gradually shrinking the gap with the capital.

Bill expects demand to return to London and the South East eventually, setting the housing cycle in motion again.

"The recent jump in mortgage rates is only starting to show its effects. Activity and prices will likely remain subdued through the rest of the year, with highly leveraged borrowers - especially first-time buyers - taking the hardest hit," he added.

According to Lloyds research, Scotland has the most affordable areas for homebuyers when prices are measured against earnings. In both Inverclyde and Aberdeen, the average property cost 3.5 times annual earnings in Q2 2026.

Elmbridge in Surrey and Kensington and Chelsea in London are the least affordable places to buy a home compared with local earnings. The typical property costs 17.4 times the UK median salary in Elmbridge and 17.3 times that salary in Kensington and Chelsea.

Swipe to scroll horizontally Source: Lloyds Banking Group/Office for National Statistics (ONS)