The gap between house prices and earnings has narrowed to its lowest level in 11 years, with wage growth continuing to outpace house price inflation, according to Lloyds.
The average UK home now costs 7.3 times average annual income, down from 7.6 last year and the lowest level since 2015, the research shows.
Average house prices rose by just 0.5% over the past year to £299,131, while average incomes increased by 4.5% to £40,790.
However, the improvement in the home price-to-earnings ratio has not translated into lower mortgage costs. Average monthly mortgage repayments have risen from £1,100 to £1,157 over the past year as borrowing costs rise.
Andrew Assam, director of mortgages at Lloyds Bank, said the figures provided “some encouraging signs” for people looking to buy, but warned that affordability remained stressful for many households.
“Wages have continued to rise while house prices have remained relatively stable, which has helped narrow the gap between earnings and house prices,” he said.
“However, affordability remains stressful for many households. Mortgage rates are higher than they were a year ago, and saving for a deposit remains one of the biggest barriers facing first-time buyers.”
The picture is similar for first-time buyers, with the typical first home now costing less than six times the median income.
The average property price for a first-time buyer has risen by just 0.3% over the past year, from £238,875 to £239,681.
With earnings growing faster than home prices, the home price-to-earnings ratio for first-time buyers fell from 6.1 to 5.9, also its lowest level since 2015.
But collecting deposits remains a major hurdle. A typical first time buyer will still need to save approximately £24,000 for a 10% deposit.
Average mortgage repayments for first-time buyers have risen from £1,100 to £1,150 per month over the past year. However, wage growth means mortgage payments still represent about 34% of average monthly income, unchanged from the previous year.
For buyers who can scrape together a deposit, mortgage repayments remain below average rental costs. The average monthly rent rose by 3.2% over the year, from £1,339 to £1,382.
This means that a first-time buyer’s mortgage payment represents about 34% of income, compared to 41% for renters.
The narrowing of the affordability gap has been particularly noticeable in some of Britain’s most expensive housing markets.
The South East recorded the biggest regional improvement, with the average cost of a home now at 9.1 times income, compared to 9.7 times last year.
It was followed by Greater London, where its ratio decreased from 10.9 to 10.3. The East of England improved from 8.7 to 8.2, while the South West fell from 8.2 to 7.7.
Despite these improvements, London and the South East remain some of the least expensive areas in Britain.
More affordable parts of the country saw smaller changes. In the North East, the ratio fell from 5.1 to 5, while Scotland remained broadly unchanged at 5.3.
The North West saw its ratio fall from 6.5 to 6.3, while in Yorkshire and the Humber the ratio improved from 6 to 5.8.
Northern Ireland was the only region or country to become less expensive relative to profits. Home prices rose by 7.4%, compared to a 3.7% increase in profits, increasing the ratio from 5.8 to 6.
There remain significant differences between local housing markets, with some of the lowest house price-to-earnings ratios concentrated in Scotland and the north of England.
Inverclyde and Aberdeen were the most expensive local authorities, with the average cost of homes being 3.5 times income in both areas.
It is followed by Kingston upon Hull, Blackpool and Dundee, where homes cost around 3.6 times local income.
At the other end of the scale, Elmbridge in Surrey remained Britain’s least expensive local authority, with the average house price equivalent to 17.4 times income.
They were followed by Kensington and Chelsea with 17.3 times the profits, while St Albans came in third place with 14.1.
Some traditionally expensive markets recorded particularly sharp improvements in affordability.
In Westminster, the proportion fell from 15.2 to 13.3, while Cambridge fell from 11.4 to 10. Elmbridge fell from 18.7 to 17.4, while New Forest fell from 10.1 to 8.7.
In contrast, many areas that were previously among the most affordable markets have seen their percentages increase.
Rossendale recorded the largest increase, rising from 4.8 to 5.4, followed by Wrexham, which rose from 4.9 to 5.5, and Halton, which rose from 5.1 to 5.6.
Argyll and Bute’s score rose from 4.6 to 5.2, while Chesterfield’s score rose from 5.2 to 5.8.
Lloyds said the figures demonstrate the continuing importance of location when it comes to housing affordability.
Buyers can make significant savings by looking at nearby areas, especially first-time buyers who have flexibility about where they live, Assam said.
“Where you buy from still makes a big difference in affordability,” he said.
“For first-time buyers in particular, a simple change in location can make a huge difference – not just to getting on the ladder, but also to the type of property accessible.”
He added that many areas of Scotland and northern England continued to offer relatively low house prices compared to local incomes.
“For buyers who are flexible about where they live, it can make a tangible difference in what they can afford,” he said.
