House Price Affordability

This graph shows the fluctuations in house price affordability in the UK. At the height of the 1980s boom, mortgage payments as a % of take home pay were a record 140%. The cost of mortgage payments was heightened by the period of high interest rates.

The following house price crash and decline in interest rates led to a sharp drop in relative cost of mortgage payments. By 1995, mortgage payments were only 45% of take home pay. This helped fuel another boom in house prices. Although interest rates remained relatively low, banks lent mortgages which were a bigger % of people’s income meaning the cost of mortgages soared relative to income.