Since the Bank started raising rates in December 2021, the share of salary needed to cover the mortgage payments on an average home has risen to 20.6pc. This is the highest share since September 2008, when wages plunged during the global financial crisis.
As rates rise further, Pantheon expects the share to peak at 23.5pc in September. It described the jump as “colossal”.
This means house prices would need to fall by 10pc over the next 18 months for mortgage costs to fall back to 18.6pc of income, roughly in line with the benchmark of the 2000s and 2010s.
Few analysts expect such big price drops. Pantheon has forecast a 2pc house price fall in the second half of this year, followed by a 2.5pc rise in 2023, based on its expectations for the Bank Rate.
The Centre for Economics and Business Research, a think tank, by contrast, has just downgraded its house price forecast for 2023 from a drop of 3.4pc to a 3.7pc fall. But this still comes far short of a 10pc drop.
Capital Economics, a research consultancy, is more pessimistic and has forecast a bigger house price drop of between 5pc and 10pc. But this is based on its expectations of more extreme rises in the Bank Rate than Pantheon expects. So in this scenario even a 10pc fall would not be enough to return housing affordability to the level seen in the 20 years before the pandemic, as higher mortgage costs would be higher.
