Owning a home has been and remains a fundamental societal goal, with just under two-thirds (65%) of UK households being homeowners. Even among those facing today’s house-buying challenges, homeownership remains a key aim, as explored by Alastair Morley in the latest issue of the INTEREST journal.
Issue 16 of INTEREST, from Moneyfacts, includes several insightful stories such as retail deposits, cash ISA debate, the ‘doves’ and the ‘hawks’ of the MPC, trade agreements, the hunt for yield and a personal view on savings apathy. The issue also dives into who and what influences house prices.
- Just over four-fifths (81%) of Gen-Zers (those born from 1997-2012) aspire to purchase their own home, according to the National Centre for Social Research.
- House prices in the UK are currently around 7.0 times higher than average annual earnings, down slightly from 2022’s peak but higher than at any other point over the past 150 years, according to Schroders.
Aspiring homeowners cite affordability challenges, saving for a deposit and insufficient income as the largest barriers to homeownership. These factors are exacerbated when house prices move upwards and vice-versa when prices fall. Tighter lending criteria, introduced after 2008, means most lenders will only lend up to 4.5 times a buyer’s income. With borrowers required to stump up more for a deposit, it is perhaps no surprise that over half of last year’s first-time buyers received financial help from family.
While interest rates play a key role in the affordability process, it could be argued that changes to interest rates have less bearing on house prices now than once was the case. In the early 1990s, for example, far more homeowners had variable rate mortgages. When rates went up during this time, a significant proportion of households could simply no longer afford their mortgage payments. This led to a 20% fall in house prices, 350,000 repossessions between 1990 and 1995 and an almost decade-long recovery.
When interest rates climbed in 2022/23, the results were very different. Repossessions remained extremely low, with 6,440 recorded in 2024 and 7,000 cases forecast for 2025, while house prices have already surpassed 2022 levels following a slight dip in 2023. With roughly 82% of mortgage borrowers currently locked into a fixed rate, changes to interest rates have less of an immediate impact on households’ ability to keep up with their monthly repayments.
Despite this shift, interest rates remain a key influence on house prices. Those struggling with today’s affordability issues will point towards the post-financial crisis, ultra-low-interest rate era as a leading reason for the disproportionate house price growth over the past decade.
There are several macroeconomic factors with varying levels of influence on house prices. These influences can be categorised into two groups: demand-side and supply-side. The interaction between supply- and demand-side factors determines house prices at any given time. Economists view the housing market in one of four phases: recovery, expansion, hypersupply and recession. This is also known as boom, bust and recovery.
As we have seen in recent years, price growth can be unpredictable, varying significantly from one region to another and surging even in adverse economic conditions. However, with the number of available homes for sale at a 10-year high, according to Rightmove, and several indices forecasting only modest house price increases in the coming years, perhaps we are entering a new phase of the property cycle. After all, we cannot rely on interest rates to drop back to the rates of three or four years ago to make homeownership more affordable. (Read more on page 4 and 5).
Read more in the latest issue of the INTEREST journal, which you can read for free here. Part or all of this press release can be reproduced, so long as we are sufficiently sourced.
- ENDS
INTEREST is dispatched in advance of meetings of The Bank of England’s Monetary Policy Committee and is distributed free of charge.
Next Issue 25 July 2025. To receive the latest issue and sign up please visit: https://www.moneyfactsgroup.co.uk/magazines-and-reports/interest/
Have an opinion? Letters to the Editor invited:
interest@moneyfacts.co.uk
Owning a home has been and remains a fundamental societal goal, with just under two-thirds (65%) of UK households being homeowners. Even among those facing today’s house-buying challenges, homeownership remains a key aim, as explored by Alastair Morley in the latest issue of the INTEREST journal.
Issue 16 of INTEREST, from Moneyfacts, includes several insightful stories such as retail deposits, cash ISA debate, the ‘doves’ and the ‘hawks’ of the MPC, trade agreements, the hunt for yield and a personal view on savings apathy. The issue also dives into who and what influences house prices.
- Just over four-fifths (81%) of Gen-Zers (those born from 1997-2012) aspire to purchase their own home, according to the National Centre for Social Research.
- House prices in the UK are currently around 7.0 times higher than average annual earnings, down slightly from 2022’s peak but higher than at any other point over the past 150 years, according to Schroders.
Aspiring homeowners cite affordability challenges, saving for a deposit and insufficient income as the largest barriers to homeownership. These factors are exacerbated when house prices move upwards and vice-versa when prices fall. Tighter lending criteria, introduced after 2008, means most lenders will only lend up to 4.5 times a buyer’s income. With borrowers required to stump up more for a deposit, it is perhaps no surprise that over half of last year’s first-time buyers received financial help from family.
While interest rates play a key role in the affordability process, it could be argued that changes to interest rates have less bearing on house prices now than once was the case. In the early 1990s, for example, far more homeowners had variable rate mortgages. When rates went up during this time, a significant proportion of households could simply no longer afford their mortgage payments. This led to a 20% fall in house prices, 350,000 repossessions between 1990 and 1995 and an almost decade-long recovery.
When interest rates climbed in 2022/23, the results were very different. Repossessions remained extremely low, with 6,440 recorded in 2024 and 7,000 cases forecast for 2025, while house prices have already surpassed 2022 levels following a slight dip in 2023. With roughly 82% of mortgage borrowers currently locked into a fixed rate, changes to interest rates have less of an immediate impact on households’ ability to keep up with their monthly repayments.
Despite this shift, interest rates remain a key influence on house prices. Those struggling with today’s affordability issues will point towards the post-financial crisis, ultra-low-interest rate era as a leading reason for the disproportionate house price growth over the past decade.
There are several macroeconomic factors with varying levels of influence on house prices. These influences can be categorised into two groups: demand-side and supply-side. The interaction between supply- and demand-side factors determines house prices at any given time. Economists view the housing market in one of four phases: recovery, expansion, hypersupply and recession. This is also known as boom, bust and recovery.
As we have seen in recent years, price growth can be unpredictable, varying significantly from one region to another and surging even in adverse economic conditions. However, with the number of available homes for sale at a 10-year high, according to Rightmove, and several indices forecasting only modest house price increases in the coming years, perhaps we are entering a new phase of the property cycle. After all, we cannot rely on interest rates to drop back to the rates of three or four years ago to make homeownership more affordable. (Read more on page 4 and 5).
Read more in the latest issue of the INTEREST journal, which you can read for free here. Part or all of this press release can be reproduced, so long as we are sufficiently sourced.
- ENDS
INTEREST is dispatched in advance of meetings of The Bank of England’s Monetary Policy Committee and is distributed free of charge.
Next Issue 25 July 2025. To receive the latest issue and sign up please visit: https://www.moneyfactsgroup.co.uk/magazines-and-reports/interest/
Have an opinion? Letters to the Editor invited:
interest@moneyfacts.co.uk
