Record-setting house prices are at their most affordable level within the past ten years, according to Nationwide.
In the UK, the housing market is experiencing a significant shift, with the house price-to-earnings ratio showing a notable decline from its peak in 2022. As of mid-2025, the ratio stands at around 5.75, down from a high of 6.9 in 2022 [1][3][5]. This trend indicates improved housing affordability relative to incomes.
This decline in the house price-to-earnings ratio can be attributed to changes in mortgage rates. After a period of elevated interest rates set by the Bank of England—currently at 4.25% as of July 2025—the average mortgage rates have begun to nudge down slightly in recent months [2][4]. This easing of mortgage rates, despite the Bank of England raising rates previously to combat inflation, makes borrowing costs somewhat less expensive, which in turn supports house price growth at a moderated pace.
Unemployment remains low in Britain, and household balance sheets are strong. The interest rate on a typical five-year fixed-rate mortgage is around 4.3% for a borrower with a 25% deposit [6]. Recent data from Zoopla showed that 83% of buyers would pay stamp duty if they bought a home today, compared to 49% before April, when the tax rules changed [7].
Rising mortgage rates around 2022 contributed to higher borrowing costs, pushing the house price-to-earnings ratio to a peak. Since then, a softening in mortgage rates combined with income growth has lowered the ratio to 5.75, the lowest in over a decade [1][2][3].
The average UK house price is currently £272,664 [8]. House prices increased by 0.6% monthly on average in July, after a 0.9% fall in June [9]. The annual rate of house price growth accelerated to 2.4% in July, from 2.1% in June [10]. Despite the ratio still being above the long-term average of 4.8, it is lower than it has been for more than a decade [11].
Experts predict that house prices will continue to rise gradually. Riz Malik, director at R3 Wealth, and Jeremy Leaf, a north London estate agent, both anticipate a modest improvement all round in the housing market, particularly if interest rates are reduced in the next month or so [6][12]. Iain McKenzie, chief executive of the Guild of Property Professionals, emphasizes the importance of realistic pricing for sellers and the increased opportunities for buyers in a more competitive landscape [13].
The Bank of England will be voting on whether or not to increase or cut interest rates next Thursday [14]. If the base rate is lowered further in the coming quarters, borrowing costs are likely to moderate a little further, potentially further supporting the housing market [15].
- Investors in the UK real-estate market might find an improved financial opportunity due to the decline in the house price-to-earnings ratio, which has reached 5.75, making housing more affordable.
- The decrease in mortgage rates, although they are still higher than previous years, has contributed to a softening of the house price-to-earnings ratio, making borrowing costs somewhat less expensive for homebuyers with a 25% deposit.
- Personal finance experts and real-estate professionals are optimistic about the future of the UK housing market, predicting a gradual rise in house prices and increased opportunities for buyers based on moderate borrowing costs and improved housing affordability.
