UK Housing Crisis 2025 – Why Millions Still Can’t Buy a Home

Transcript

Hi, I’m Ruban Selvanayagam, co-director at Property Solvers.

For a growing number of people, homeownership isn’t just delayed — it feels completely out of reach. Rents swallow disposable income, deposits balloon, and even for those seeing their wages going up, affordability keeps slipping away.

In this video, I’ll look at how house prices compare to wages in 2025, what history can teach us, and what it means for anyone trying to buy, sell, or invest in today’s market. 

Let’s dive in…

According to the Office of National Statistics and Land Registry, the average UK house price is currently at around £270,000, while full-time earnings sit at roughly £35,000 to £36,000. That means the average home now costs seven and a half to eight times the typical salary.

In its Living Standards since the Last Election report from March 2024, the Institute for Fiscal Studies showed that between 2007 and 2022, median household incomes grew by only about 7% in real terms — in other words, after stripping out inflation. By contrast, from the early 1990s through to 2007, they rose by around 36% once inflation was taken into account.

You might also hear the phrase nominal terms. That just means the raw numbers before inflation. The same distinction applies to house prices: they might look like they’re rising in nominal terms, but if inflation is running just as fast, the real increase — and the impact on affordability — can be far smaller than it first appears. More on this later…

So the more recent evidence suggests things haven’t improved much in the last few years. ONS data shows real pay growth is still running at only around half a percent to one percent a year, and typical disposable household incomes remain stuck close to where they were in 2019–20 after adjusting for inflation.

That’s why many economists call the post-financial crisis era the weakest period for income growth in generations. In the past, pay packets typically rose two or three percent above inflation every year, giving each generation a better shot at homeownership. But that pattern has broken — and it’s one of the key reasons the affordability gap today feels so tough to bridge.

And you can see the impact of that directly in the age of first-time buyers. According to Halifax, the average age hit 33 in 2024 — the highest in two decades. Compare that with around 29 in the early 2000s, and just 23 or 24 back in the 1960s and 70s.

These national averages only tell part of the story, though. Affordability varies hugely across the UK — and when you combine stagnant wages with regional price differences, the picture gets even more uneven.

In London and the South East, ONS data shows house prices often sit at 12 times average incomes, making it almost impossible for many young people to get a foot on the ladder. Even high earners often rely on family help — the so-called “Bank of Mum and Dad.” 

Others turn to shared ownership schemes, but as Shelter and the National Audit Office have highlighted, those come with headaches: you’re still paying rent on the part you don’t own, service charges can be unpredictable, and selling later on can be far from straightforward.

In the East and South West of England, Land Registry figures put the typical home at nine or ten times local salaries. In rural and coastal areas like Cornwall, second-home ownership and lifestyle migration push prices even further out of reach — ONS data shows an average home at around £300,000, while average pay is just £28,000.

The Midlands and North West look more affordable on paper, at five or six times income. But ONS earnings data shows wages there have risen more slowly, so the ability to buy isn’t as strong as the ratios suggest. 

In Birmingham, for example, the Land Registry puts the median house price at around £240,000, while ONS data shows the average salary is £32,000. That’s a ratio of 7.5 times — and even a couple earning £60,000 would still need a £30,000 deposit, all while paying rents which have been increasing in recent years.

In the North East, ONS figures put price-to-income multiples at closer to four or five, making it the most affordable region. In Newcastle, the Land Registry shows homes at around £180,000, against salaries of £31,000. 

However, across many parts of the region, the challenge isn’t just house prices — it’s the weaker local labour market, which means many can’t get the mortgages they’d need.

Scotland, Wales, and Northern Ireland sit Slightly Below the National Average, but urban centres in those regions still face stretched affordability. 

In Cardiff, Land Registry data puts the average home at £250,000, with ONS earnings at £31,000 — that’s about eight times income. In Glasgow, it’s closer to six, and in Belfast around six as well, though family help is often needed to bridge the deposit gap.

But these stats didn’t just appear out of nowhere. They’re the product of decades of shifting house prices, wages, and inflation. To understand how we got here, let’s take a step back and trace how the relationship between pay and property has changed over time.

In the 1970s and early 80s, UK inflation was often running well into the double digits, with Bank of England base rates climbing above 15% and peaking at 17% in the late 70s. Mortgages felt crippling at the time — but here’s the thing. 

ONS data shows that wages were also rising sharply — often by 10, 15, even over 29% in 1975, as employers scrambled to keep up with soaring prices.: households were squeezed in the short term, but inflation and wage growth meant debts were eroded far more quickly than we’d see today.

By the mid-80s, inflation began to cool, but wages were still growing strongly in real terms. A £10,000 mortgage taken out in the mid-70s may have felt like a huge burden at first, but within a decade, higher earnings meant those repayments were taking up a much smaller share of household income.

Then came the early 1990s. The late-80s boom ended in a housing crash that left more than a million households in negative equity. On paper, the house price-to-earnings ratio looked healthier — around three to four times income, roughly half of today’s level.

But the reality was harsher. Interest rates had been pushed to close to 15% in 1989 to cool the boom, and even though they fell back during the 1991–92 recession, mortgages still felt punishing. Prices had fallen, wages were barely edging forward, and for many homeowners, affordability didn’t match what the ratios suggested.

By the 2000s, easy credit and looser lending standards pushed ratios back up to six or seven times income by 2007. When the financial crisis hit, nominal house prices fell by about 21%, and real prices by almost the same amount. 

So inflation wasn’t a big factor that time, so the two measures moved together. Ultra-low interest rates then stopped a full collapse and set the stage for recovery.

The 2010s brought a different set of forces: quantitative easing, overseas investment, and a chronic shortage of new housing. 

Prices rebounded, especially in London, but wages remained weak under the government’s austerity. The affordability gap widened even further.

Then came the Covid boom. Stamp duty holidays, lifestyle shifts and rock-bottom interest rates pushed prices more than 20% higher in just two years. Wages didn’t keep pace, stretching affordability even more.

By 2022 and 2023, the picture had shifted again. Nominal house prices dipped by only about 5.5% during the cost-of-living crisis. 

But Once you Adjust for Inflation, House Prices Actually Fell by Around 16%. In real terms, that was almost as deep as the 2008 crash — a “Silent Crash” that went largely unnoticed because the headline numbers still looked stable.  The sales figures looked exciting but what money could actually buy had dropped sharply.

Now, inflation itself is measured in different ways. The Consumer Prices Index, or CPI, is the headline number you usually hear. The ONS prefers CPIH, which also factors in housing costs like rent and mortgage interest. In August, CPIH stood at 4.1%. If you use the older Retail Prices Index, or RPI, inflation looks higher still — which means the squeeze on wages and affordability often feels sharper than CPI alone suggests.

Wages are currently rising in the 4–5% range in nominal terms, which leaves real wage growth just slightly positive — though still very weak. On the property side, Nationwide and Halifax both show annual price growth of around 2%, with averages between £271,000 and £300,000. So with inflation outpacing house price rises, real house prices are edging down in many areas.

That doesn’t mean buying is suddenly easier. Deposits of £50,000 or more remain the norm, lenders still cap borrowing at 4.5 times income, and since 2008 house prices have more than doubled in nominal terms. Even after adjusting for inflation, they’re still 25–35% higher. Combine that with stagnant real wages, and it’s clear why affordability hasn’t recovered.

Here’s the twist: inflation doesn’t affect everyone equally. For existing homeowners, it erodes old debts, making repayments feel lighter over time. For first-time buyers, it pushes up interest rates, making mortgages more expensive from the start while doing nothing to shrink the deposit hurdle. And for investors, it chips away at debt long-term, but higher borrowing costs and thinner yields make the short-term maths much tougher.

So why has this gap between wages and house prices proved so stubborn? The answer lies in a mix of supply, demand, and policy choices stretching back decades.

Let’s start with supply. Back in 2004, Kate Barker’s independent review for the government concluded the UK needed to build at least a quarter of a million new homes every year just to keep affordability stable. 

Successive governments have made that pledge, but the target has rarely been met. Restrictive Planning Rules have played a huge part. Economists often argue that Britain’s planning system has created an artificial scarcity of land, which keeps house prices high almost by design.

Credit is the other side of the story. The availability of cheap mortgages has been just as important as supply shortages in driving prices up. After the 2008 crash, ultra-low interest rates meant borrowing was cheap, fuelling nominal prices even while wages flatlined.

But lending rules also tightened. The Mortgage Market Review (2014) forced banks to run stricter affordability checks — stress-testing buyers against potential interest-rate rises and looking harder at household spending. 

While this cooled some of the excesses of the pre-crash market, the combination of cheap credit and limited housing supply still pushed prices higher, especially in areas with strong demand.

Then there’s Global Capital. In London especially, homes became more than just places to live — they were treated as financial assets. Overseas investors saw UK property as a safe store of value, which added another layer of demand to an already stretched market.

Government policy has often shaped this dynamic, sometimes with unintended side effects. Help to Buy, introduced in 2013, was designed to give first-time buyers a leg up. 

But analysis by the Office for Budget Responsibility suggested it increased demand without fixing supply, inflating new-build prices by as much as 5–7% and I personally think it’s more when you take the new build premium that many developers charged to buy one of these units.  

More recently, the debate around 95 to 100% Mortgages has returned. Supporters say they help buyers with tiny deposits get onto the ladder. Critics counter that without more supply, all they really do is inflate prices further. Policies that stretch affordability without addressing supply risk make the situation worse.

Demographics play a role, too. Longer life expectancy means more, smaller households, which keeps demand for homes rising even when the overall population isn’t growing quickly. 

And then there’s Geography. The UK economy remains tilted toward London and the South East, with many of the highest-value jobs clustered in the very places where housing is least affordable. 

At the same time, regional cities such as Manchester, Birmingham, and Leeds have growing economies and rising housing demand of their own — but affordability pressures there, while real, are generally less severe than in the capital.

If we step back and look abroad, the UK’s position really stands out.

In Germany, house price-to-income ratios are closer to five or six. In France, they hover around six to seven. In the US, they’re typically four to five — though hotspots like San Francisco or New York shoot much higher. 

On almost every measure, the OECD ranks the UK as one of the least affordable housing markets in the developed world, right up there with countries like Canada and New Zealand.

So what could actually shift the balance?

Governments regularly set targets of 300,000 homes a year, but year after year, delivery falls short. Without tackling the planning system, those numbers remain more of an aspiration than a reality. 

Economists, planning specialists, and developers themselves have long argued that the system is the root cause of scarcity — keeping land values high and housebuilding constrained almost by design.

But even when sites do get through, the inflationary pressures that I mentioned earlier on materials and labour add another layer of difficulty. Since the pandemic, the cost of bricks, timber, steel, and concrete has surged, while a chronic shortage of skilled trades has pushed up wages on site. 

Developers warn that even projects that seem viable initially can stall because margins don’t stack up as time progresses. In other words, the economics of actually building homes have become so much tougher and, according to the Land Registry, just 19 new build homes were sold across the whole of London in May.

Tax policy plays its part too. Council tax in England and Scotland is still pegged to 1991 values (2003 in Wales), so a modest northern terrace can end up taxed more heavily relative to value than a London townhouse. Stamp duty creates its own distortion: by taxing transactions rather than ownership, it discourages moving, reduces market fluidity, and limits the supply of homes for sale.

But these ideas tend to stall in the political cycle, because no government wants to risk rocking the boat too much and potentially jeapordise their chances of winning the next election.

Stronger wage growth would of course help, but without deeper productivity reforms across the wider economy, it’s unlikely to close the gap on its own.

Alternative tenures — shared ownership, build-to-rent, even community-led housing — can provide options at the margins, but they don’t fundamentally rebalance supply and demand.

Kate Barker perhaps put it best in her landmark review: “Unless supply is significantly increased, no set of policy tweaks will deliver long-term affordability.”

To conclude, the gap between house prices and wages isn’t new, but in 2025 it’s still one of the defining pressures in the market. Inflation continues to run ahead of house price growth, so real values are edging down. 

Wages are rising—but only slightly faster than prices—and deposits plus lending caps remain the brick wall for first-time buyers. 

In short: the headlines look calmer, the mechanics underneath do not. Affordability only truly improves when incomes make meaningful, sustained gains relative to housing costs.

If you’re looking to buy, think carefully about your timeline. If you need to move within the next year or so, waiting for a big drop in prices or a big rise in wages could backfire. 

Affordability varies massively depending on where you are — as I mentioned earlier,  in London it can be 12 times income, while in parts of the North East it’s closer to four or five. 

The real hurdle is often the deposit. Saving while renting is tough, with rents eating up so much disposable income that even households with decent wages struggle to put money aside. So while prices may have eased a little in real terms, that upfront cash barrier hasn’t gone away.  It’s unlikely that this issue is likely to go away, despite the talk of low deposit (or high loan to value mortgages in recent months.

If you’re looking to sell, the same questions apply but from the other side. Certainty often matters more than squeezing out every last pound. In some regions, stretched affordability makes it harder for agents to find proceedable buyers. 

In others, demand is still strong, but fall-throughs remain common. Your own finances and circumstances will guide the choice: wait it out and play for price, or take the security of a quicker, more de-risked route like an auction or a fast sale.

If you’d like that free, bespoke valuation report—or want to talk through a sale via auction, express agency, or a fast cash route—drop me a line at ruban@propertysolvers.co.uk.

A massive thanks for watching this.  Please like the video, subscribe, and hit the bell for more deep dives on auctions, fast sales and the UK housing market.