Mortgage affordability on course for 2021 levels, but cheap money must stay in past

Mortgage affordability could be on course to return to its most manageable level in almost five years, according to exclusive new analysis from INTEREST by Moneyfacts, as easing rates and rising incomes restore some breathing space for borrowers.
The research shows that average mortgage payments, which peaked at close to half of gross monthly income in 2024, could fall back towards 40-41% of the average gross salary later this year, a level last seen in 2021. If average mortgage rates settle around 4.25-4.50%, based on current assumptions.
INTEREST by Moneyfacts’ analysis of historic and projected mortgage costs shows:
· June 2024: Average mortgage payments hit a peak of 49.1% of a typical gross monthly salary
· June 2025: That figure fell to 45.1%
· June 2026 affordability outlook:
40.7% at a 4.25% average mortgage rate
41.8% at a 4.50% average mortgage rate
This marks a significant improvement from the affordability squeeze seen in 2023 and 2024, when sharp rate rises pushed monthly mortgage affordability to its limits or beyond for many households.

Why affordability is improving
The improvement is being supported by a more stable economic background:
Pay growth is expected to remain resilient, with businesses budgeting for around 3.2% wage rises(1)
House price growth is forecast to moderate to around 2.5%, easing pressure on buyers(2)
Inflation is expected to move back towards the Bank of England’s 2% target(3)
Together, these trends should allow mortgage costs to ease without reigniting runaway house price inflation.

Why ultra-low rates are not the answer

While calls for rapid Base Rate cuts often focus on helping borrowers, Moneyfacts’ historic rates data shows that cutting rates too far risks storing up future affordability problems.

During previous periods of ultra-low rates, cheap borrowing encouraged more capital to flow into property, pushing prices up faster than wages. Any short-term relief from lower monthly payments was quickly absorbed by higher house prices and left first-time buyers worse off once rates normalised.

A more balanced, ‘neutral’ Base Rate supports borrowers without punishing savers, helping to deliver sustainable affordability rather than another boom-and-bust cycle.

Adam French, Head of Consumer Finance at Moneyfacts, said:
“Mortgage rates are easing, but the era of ever-cheaper borrowing is firmly behind us. Many fixed rate lenders will have already factored forecast rates cuts into their product pricing to some extent and just how far mortgage rates will fall remains to be seen. However, mortgage affordability is moving in the right direction, and that will come as a real relief to borrowers who have endured a few really tough years.
“INTEREST by Moneyfacts analysis shows that a balanced Base Rate can deliver genuine breathing space for borrowers while keeping house price growth in check. But this should not be mistaken for a return to the era of ultra-low interest rates
“First-time buyers in particular stand to benefit from improving affordability but only if house price inflation stays in check. Cutting rates too far risks pumping excess capital back into the housing market, inflating prices and undoing the very affordability gains many buyers and borrowers are hoping for. The challenge for the Bank of England is balance between supporting borrowers, rewarding savers fairly, and avoiding the mistakes that made homes increasingly unaffordable in the past.”