According to our analysis, mortgage repayments currently account for approximately 36% of take-home income, which sits close to the long-term average over the past 55 years.
For years we’ve been told that Britain’s housing market is broken, with affordability cited as the biggest obstacle preventing people from getting onto the property ladder. That said, we thought we should look at the data behind the narrative, to check the ‘what’ and understand the ‘why?’ behind the current housing slump, and, given that the UK housing market is central to most of us, we thought we would share our findings with our fabulous clients!
Before we do, it is worth remembering that, home valuations and ownership are important not just in terms of providing a foundation for prosperity. They also provide a platform for personal development and growth. The security of bricks and mortar is an enabler for increased security, confidence, a feeling of belonging and of community. Confidence in turn helps people to spend, boosting the wider economy. Some of that shows up in the data and some of it doesn’t, it’s more intangible, but the combined effect is significant. Property then is an all round good egg, so it’s important for UK Plc that its housing market is in good health.
A quick look at an equally weighted basket of UK’s four largest house builders shows that over the last 5 years their collective share price has fallen by 51.7% (to 20/8/26 – FE Analytics). That very much reflects a housing slump then, where they are unable to build and make sufficient profit.
So what are the current issues? Well, the common narrative is that house prices have become detached from earnings, making homeownership unattainable for many people. Yet, when mortgage payments are assessed as a proportion of take-home pay, the figures tell a different story.
According to our analysis, mortgage repayments currently account for approximately 36% of take-home income, which sits close to the long-term average over the past 55 years. Furthermore, in many areas of the country, monthly mortgage payments remain lower than equivalent rental costs. Typical mortgage payments were cited at around £1,200 per month compared with average rents of £1,388 (Financial Conduct Authority, 2026).
This suggests that once homeowners secure a mortgage, ongoing affordability may be less of an issue than many assume. Indeed, mortgage default rates have remained for some time around historic lows of 0.6% to 0.7%. So if monthly payments aren’t the primary problem, what is?
In our view a bigger obstacle remains saving for a deposit. While previous generations could often buy with relatively small deposits, today’s buyers commonly need to provide between 10% and 15% of the property’s value upfront. And in order to save such a deposit, you have to be able to ‘save’ full-stop, which a lot of people, especially in and around London and the major cities, struggle with due to the cost of living.
For many first-time buyers, accumulating this sum can take years. As a result, the average age of entering the housing market has risen from around 23 years old to approximately 34 years old (Uk Government Stats 2026). Demand has therefore fallen, and falling demand means falling prices. ‘Falling prices’… yes, we will come back to that later.
For a long time now, the UK has faced a structural shortage of homes, with estimates suggesting the country needs circa 300,000 each year.
Taking a look at how regulation might help, we know that following the 2008 banking crisis, stricter rules requiring banks to hold more capital against higher loan-to-value (LTV) mortgages were introduced. These measures were designed to improve financial stability, which has certainly happened – the financial status of banks is now very robust and our banking sector is therefore able to withstand a dramatic change in economic conditions. (Bank of England stress test report in 2005). So it is fair to say that today those regulations are less relevant than they were after 2008, and it may well be that their continued use has delivered significant unintended consequences.
In our view, outdated regulation is a key contributor to the reason mortgage approvals have remained substantially below historic levels for more than a decade. Before 2007, annual mortgage approvals averaged approximately 1.25 million. More recently, this figure has averaged around 748,000 per year. All of this means less demand should lead to lower prices, and therefore has this followed through and have houses actually become cheaper? The answer to this is a resounding yes, even taking account of a small number of regional variations.
While many people focus on headline property values, real prices take inflation into account. By this measure, the analysis suggests that UK house prices have fallen by around 12% since late 2021 and have effectively returned to levels seen approximately 20 years ago in inflation-adjusted terms. So that’s got to be good news, right?
Well, if you can save a deposit then yes, but the problem around housing also then turns away from demand and into supply. For a long time now, the UK has faced a structural shortage of homes, with estimates suggesting the country needs circa 300,000 each year. However, the sector has typically delivered closer to 200,000.
Housebuilders face their own challenges, specifically rising construction and labour costs, increased planning and regulatory requirements and weaker demand from buyers for all the reasons noted above. These factors have squeezed profit margins and slowed new development activity. Housebuilders cannot build with uncertainty around inflation, regulation and interest rates. All of this is reflected in the current share price of our beleaguered businesses.
A healthier housing market therefore requires both increased supply and improved demand. The main lever to deliver that has to be less onerous banking regulation. Houses, as we have seen, are actually more affordable relative to wages, than at anytime in the last decade, and mortgage repayments, despite higher rates are being met with historically low default rates.
The final issue in the sector is one of skilled labour. Even if we can manage to stimulate the demand and supply side of the housing market equation, we have to find the tradespeople to build the properties, and our research shows that we have a significant shortfall if more spades were required in the ground.
While affordability concerns remain valid in certain parts of the country, the difficulty of raising a deposit, the impact of banking regulation and ongoing supply constraints may all play a greater role than commonly understood.
Whether policymakers choose to pursue significant regulatory reform remains to be seen. However, one thing is clear: the debate around housing affordability is far more complex than many headlines suggest.
In summary, before we can begin to add the UK housebuilders to our portfolio’s the UK housing market needs to overcome some significant challenges, but perhaps not always the ones we hear most about. In the meantime we hope understanding these underlying forces can provide valuable context to our clients when making financial and property decisions in the years ahead. In the meantime, we are pretty confident that property values are unlikely to rise significantly anytime soon.
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Amber River DB Wood
Our team at Amber River DB Wood includes Chartered financial planners who look after clients across the East Midlands and beyond.
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