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Rising home prices coupled with high mortgage rates have made buying a home increasingly out of reach for many in recent years. But a loosening of mortgage regulations, falling interest rates, and a drop in house prices could mean that a more achievable path to homeownership is opening.
According to July’s property market data from Rightmove, the average cost of a home coming up for sale has decreased by 1.2% in the past month, to £373,709. Mortgage rates have also relaxed, from an average two-year fixed rate of 5.34% a year ago, to 4.53% now.
The figures seem to have had a pleasing effect on the appetite of buyers. There were 64,167 mortgage approvals in June 2025 according to the Bank of England, which was higher than expectations by over 1,500, and an increase from May’s number of approvals.
The lending process is changing
While a fall in house prices may have hopeful buyers back on the hunt, being granted a mortgage for that home can present a separate set of challenges, especially for those on the lower end of the salary scale. From 1910 to 1998, the average house price was about four times the average annual earnings of the household. Since 2000, the figure is closer to eight times*. This growing difference can make mortgage approval more difficult.
David Hollingworth, associate director of communications for L&C Mortgages, explained how most lenders go about the process of approving a loan, and the factors they may consider.
“First and foremost, lenders will look at income and outgoings when they're assessing affordability,” Hollingworth said.
“They'll be looking at committed expenditure, other loan payments, what cost of living looks like, and what they expect a typical expenditure to look like. That will be their primary test, and that is what I would term a lenders affordability calculation.”
Based on this, a lender would determine if they’d like to make the loan. But in the past, even if lenders wanted to make a loan, it didn’t always mean that they could, due to regulation around the process. Until the start of July, only 15% of the mortgages a provider made could exceed 4.5x the annual income of the borrower. Now, this rule is under review, as the industry as a whole has been comfortably under the 15% limit.
How does this affect you? It may mean that it is easier to take on a bigger loan at a lower rate of income. For some people, this may ring alarm bells of the 2008 financial crisis. There are still more policies in place to protect the UK from running into a similar situation with housing purchases.
However, taking out a mortgage, especially one that far outweighs income, must still be approached with an abundance of caution. Buyers need to assess if the loan they are taking out is something they are truly able to afford.
“This could potentially mean that you might not need as big of a deposit, and you can accelerate your plan to buy,” Hollingworth said.
“You can get on that ladder sooner, but you may have a bigger mortgage. That's when people start extending the term to try and keep the monthly cost down, and there’s a whole load of knock-ons and things to think about.”
Is property still a good investment?
While rising property prices have been a hindrance for first-time buyers, for those who already owned a home, the rises have meant a great return on their investment.
Oliver Jones, head of asset allocation at Rathbones, said: “Between 1980 and 2016, you had the average house price rising at 6.7% a year, even though that period had the global financial crisis in it. Lots of people just bought a house and forgot about everything else, and their financial future was basically looked after.”
But in recent years, there’s been a strong shift in the pricing trend. Now, growth has slowed to around a 3% annual increase since 2016.*
When it comes to thinking of property as an investment, that means that the growth has just kept pace with inflation during this period. In comparison, a combination of 25% UK stocks and 75% global stocks would have outperformed inflation by 3.4 percentage points each year.*
Of course, a home does bring a lot of unique investment conditions: you are able to put a large amount of money in up front for the investment through the mortgage, and you are able to eliminate rental costs.
But you also end up on the hook for other expenses that can come as a surprise, such as damage to the property or assessments, and of course, your monthly mortgage payments.
Further than the investment in your home, some have opted to gain money from a second property through buy-to-let schemes. However, there’s additional complications that can come along with this, and it’s important to be up to date with the taxation that surrounds it. Those planning on buy to let should be aware that the property may have to sit empty for some period, or damage may occur.
“First and foremost, it's not a liquid investment. You've got to be going into property not only understanding what the challenges might be but having a good idea of how long-term that investment is going to be for you. There are costs to get in and get out of buy to let, so you've got to take that on board,” Hollingworth said.
Where are house prices headed?
There are currently a few different factors influencing housing prices. From the government, most of those seem focussed on creating more affordable options for first-time buyers, which could help create a more accessible path to home ownership.
There’s never a guarantee of how markets will move. But one influence that Jones mentioned was how new homes will come into the equation, especially with government initiatives encouraging building.
“Demand (to build) hasn't been extremely strong, but the context is, we're starting with prices that are very high compared to incomes. There are many people that want somewhere to live. Filling new homes that are built won't be a problem. But the question is, at what price?” Jones said.
"Construction has already been rising. I think it's likely to keep rising, and that's something that is likely to keep a lid on house price growth.”
“But sometimes, housing can be a bit of a ‘chicken or the egg’ problem between supply and demand", Hollingworth said.
“If you just boost demand, and housing supply can't keep up, you do run the risk that prices just get pushed higher. What hopefully we'll see is as the market starts to free up, that will help encourage developers to increase their supply of new homes as well, Hollingworth said.
“If we don't get that, then you do run that risk of just pushing prices higher, which ultimately won't help buyers in the future.”
*Source: Rathbones
Hannah Williford: Content Writer
Hannah joined AJ Bell in 2025 as an investment writer. She was previously a journalist at Portfolio Adviser Magazine, reporting on multi-asset, fixed income and equity funds, as well as macroeconomic impacts and regulatory changes...
