House price to earnings ratio at lowest level in over a decade: Nationwide

July saw a modest pick-up in the rate of annual house price growth to 2.4%, from 2.1% in June, according to the latest Nationwide house price index.

The data shows that prices increased by 0.6% month-on-month, after taking account of seasonal effects.

Nationwide's figures also reveal that the UK house price to earnings ratio is at its lowest level in over a decade at around 5.75.

Robert Gardner, Nationwide's chief economist, said: "Looking through the volatility generated by the end of the stamp duty holiday, activity appears to be holding up well. Indeed, 64,200 mortgages for house purchase were approved in June, broadly in line with the pre-pandemic average, despite the changed interest rate environment.

“After deteriorating markedly in the wake of the pandemic, housing affordability has been steadily improving, thanks to a period of strong income growth alongside more subdued house price growth and a modest fallback in mortgage rates.

“While the price of a typical UK home is around 5.75 times average income, this ratio is well below the all-time high of 6.9 recorded in 2022 and is currently the lowest this ratio has been for over a decade. This is helping to ease deposit constraints for potential buyers, as has an improvement in the availability of higher loan to value mortgages.

“Similarly, the interest rate on a typical five-year fixed rate mortgage is around 4.3% (for a borrower with a 25% deposit). This is still over three times the all-time lows prevailing in autumn 2021, but well below the highs of c5.7% reached in late 2023.

“Despite wider economic uncertainties in the global economy, underlying conditions for potential home buyers in the UK remain supportive.

“Unemployment remains low, earnings are still rising at a healthy pace (even after accounting for inflation), household balance sheets are strong and borrowing costs are likely to moderate a little further if Bank Rate is lowered further in the coming quarters as we, and most other analysts, expect.

“Providing the broader economic recovery is maintained, housing market activity is likely to continue to strengthen gradually in the quarters ahead.”

Jonathan Hopper, CEO of Garrington Property Finders, commented: “The balance between supply and demand is tipping further in favour of buyers.

“The summer surge usually sees estate agents’ books fill up. But this summer’s crop of new listings is being swelled by properties that were withdrawn from sale during last year’s uncertainty, as well as the thousands of homes being sold off by disenchanted buy-to-let investors.

“Despite the modest increase in Nationwide’s national rate of price inflation, in many areas prices are either flat or falling - there are simply too many sellers and not enough serious buyers.

“Most sellers aren’t financially distressed, but in many parts of the country those who are serious about selling are having to rein in sharply their price aspirations.

“Token price reductions of £5,000 to £10,000 just won’t cut it, and those who set their asking price too high risk seeing their home sit unsold on the shelf as buyers are spoilt for choice.

“Bank of England data shows that the average mortgage interest rate for buyers has now fallen for four months in a row, and the prospect of a further base rate cut next week could make borrowing more affordable still, and inspire more renters to consider buying.

“Even though Nationwide’s data shows that homes are now mathematically more affordable than they have been in a decade, buyer sentiment is finely balanced. Cheaper borrowing costs and abundant choice mean this is a buyer’s market, but most buyers are still being prudent and pragmatic and sellers must dance to their tune.”

Amy Reynolds, head of sales at Richmond estate agency Antony Roberts, added: “Nationwide reports what we have also found in our offices – that the property market isn’t slowing down for summer. While we braced ourselves for a long, quiet stretch until September when the schools return from their summer break, we’re already back in full swing: valuing good houses, agreeing off-market sales, and running packed diaries of viewings.
 
“The general sentiment is that interest rates will come down, and the Spring market, which never really got going, thanks to uncertainty surrounding President Trump’s tariffs, has left a degree of pent-up demand. There isn’t a huge sense of urgency, and it isn’t a seller’s market, but it is a market. 
 
“Buyers are pragmatic about what they want and what they’ll pay.  If a property is priced correctly and meets the right needs, the buyer will be there – and this is playing out across all price brackets.”