# Slaying popular housing myths _First-time buyers face mortgage payments near a 55-year low – and the biggest deposit hurdle since the 1980s. The villain is not the one in the popular narrative._ Neil Woodford · 14 August 2026 · 8 min read ![For sale board](https://cdn.sanity.io/images/v3acfbvo/production/a159638b9fb3b7f1333d4be12ef01b36a935b9c0-2080x3120.jpg?w=1600&fit=max&auto=format) --- > “The great enemy of truth is very often not the lie—deliberate, contrived and dishonest—but the myth—persistent, persuasive and unrealistic.” > > — John F. Kennedy, 35th President of the United States Since launching Noise Cancelling, we have gone after a number of popular myths, covering topics like UK government borrowing and gilt yields, mysterious black holes in the nation’s finances, and wealth and income inequality. Kennedy explained why this matters better than I can: unchallenged, these misconceptions – deliberately or accidentally created – quickly harden into accepted truth, which then of course leads to all sorts of bad outcomes. _[Embedded media](https://www.noisecancelling.co/read/when-small-men-begin-to-cast-big-shadows)_ Last week we published a tome [on the popular rising-inequality myth](https://www.noisecancelling.co/read/when-small-men-begin-to-cast-big-shadows) so loved by politicians and commentators. This week I am going to tackle a subject which, for reasons that will become obvious, is closely related to it: the UK housing market, prices and affordability, and the issues currently holding it back. I promise it will be a little shorter than the last note, but I hope it too will shatter some commonly held myths about this most fundamentally important sector of the UK economy. _[Watch: Watch Neil and Jon discuss on this week's show — One Banking Rule Locked a Generation Out of Housing. What Happens When It Goes?](https://www.noisecancelling.co/the-show)_ ## The UK housing market First, a word on what the UK housing market actually is. It is not one uniform national market but a series of regional and local markets with different planning policies and different economic drivers, albeit that national planning guidelines exist and the entire market shares a sensitivity to interest rates and bank regulation. When I started the research for this note, I encountered a number of lectures and research pieces on Britain’s “housing crisis”. Much of the commentary is couched in terms of generational and income inequality and “severe affordability constraints”, driven by a long-term mismatch between local property values and wages and by high borrowing costs. I accept the last point – I have argued for some time that interest rates in the UK are too high – but I am not sure these standard explanations for the problems facing those who want to get on the property ladder are anything like the whole story. As with so much else, there is no one convenient explanation. Affordability is a challenging issue in some parts of the country and not in others, and it is certainly true that affordability has improved significantly since the pandemic – I will show the data below. The dead hand of government is an ever-present challenge, through planning policy and building and environmental regulation that drive up builders’ costs, and through the taxation of housing transactions. And then there is bank regulation – in particular the capital intensity of high loan-to-value mortgages, which are now generally uneconomic for lenders. Back in 1989 the average deposit of a first-time buyer was 5%; it is now approaching 15%. _(Neil in the margin: Under Basel rules banks must set aside capital against each loan in proportion to its perceived risk. High-LTV mortgages carry heavy risk weights, so the capital they tie up eats the profit — hence "uneconomic", not banned outright.)_ I am not going to tackle the arcane complexity of the government’s social housing policy, which, like so much else it touches, appears to be in a mess. But I will recommend a very interesting article by Andy Haldane – ex-Bank of England chief economist, and rumoured to be advising the new Prime Minister – [published over the weekend in the FT](https://www.ft.com/content/43af0b33-4c2d-4c10-8948-c77082f70935), proposing a new approach to lifting the financial and resource constraints on new homebuilding. _(Neil in the margin: Chief economist at the Bank of England until 2021, known for accessible, contrarian takes on the economy. Now runs the RSA — and, as Neil notes, apparently whispering in the PM's ear.)_ _[Embedded media](https://www.ft.com/content/43af0b33-4c2d-4c10-8948-c77082f70935?syn-25a6b1a6=1)_ ## What the affordability data actually shows So what is the truth on affordability for first-time buyers – the cornerstone argument of those who advocate all sorts of daft policy initiatives to address it? There are two ways to look at it. One is the house price/earnings ratio. The other is mortgage payments as a percentage of post-tax earnings: what the loan costs to service. They tell usefully different stories. A note on the numbers before the charts. The mortgage rate used is the standard variable rate on a 90% LTV 25-year mortgage, and earnings are post-tax median earnings for 25–34-year-olds, multiplied by 1.5 to account for joint incomes. _(Neil in the margin: Loan-to-value: the mortgage as a percentage of the property price. 90% LTV means a 10% deposit — the pinch point Neil is building towards.)_ ![First-time buyer house prices against earnings](https://r4at4qm6kmohrtvq.public.blob.vercel-storage.com/charts/chartDoc.housing.c1-pe-ratio-b9492b2ad5ac-light.png) _Apart from a brief period after the financial crisis, the ratio is back where it was in 2004 – elevated against the very long run, but well off the pre-crisis and pandemic peaks._ This first chart shows the house price/earnings ratio. Apart from a relatively brief period after the global financial crisis when the ratio dipped towards 4x, it is now back at a level last seen in 2004. Still elevated against the very long run, but the multiple has clearly corrected from the peaks before the crisis and during and after the pandemic. Helpful, but this measure does not paint the full picture. It is relevant to the challenge of saving the typical 10–15% deposit, but it says nothing about the cost of the mortgage most people need when they buy. This next chart does. ![Mortgage payments as a share of first-time buyer take-home pay](https://r4at4qm6kmohrtvq.public.blob.vercel-storage.com/charts/chartDoc.housing.c2-payments-share-0462f9a9441e-light.png) _The 55-year average is 35%. Q2 2026 stands at 36.2%, and if I am right about inflation and base rates it will be nearer 33% next year._ This is the more complete picture: it reflects both the size of the loan a first-time buyer needs and the interest rate on it. What it shows clearly is that despite currently elevated rates, the cost of a mortgage relative to earnings is close to the lows of the last 55 years – far removed from the elevated costs of the 1970s, the late 1980s, the run-in to the financial crisis, and the period after Russia’s invasion of Ukraine. The long-run average of this percentage is 35%. In Q2 2026 the number is 36.2%, and if I am right about inflation and base rates, by next year it will be down at 33%. _(Neil in the margin: The 2022 invasion sent energy prices and inflation soaring, forcing the Bank to raise base rate rapidly. Mortgage rates followed, briefly spiking payment ratios.)_ ## The real problem is the deposit, not the payment My contention is that what stops first-time buyers from buying a home is not affordability, the far bigger problem is bank regulation, which restricts banks’ ability to provide high loan-to-value mortgages. The rules do not prohibit high-LTV lending through explicit caps. But because these loans are deemed by the regulator, post the last financial crisis, to expose banks to higher credit risk, banks must hold significantly larger capital buffers against them – which in effect makes them uneconomic to the lender. The net result of this legacy regulation is that banks don’t provide these loans in any volume, and so first-time buyers now have to save, on average, a 10–15% deposit where in the late 1980s 5% was normal. In the absence of the generosity of the bank of mum and dad, young people simply have to wait much longer. In 1960 the average first-time buyer was 23. By 2007 it was 31. On the latest data, it is 34. ![The squeeze is the deposit, not the payment](https://r4at4qm6kmohrtvq.public.blob.vercel-storage.com/charts/chartDoc.housing.c6-ftb-stats-e85b63cba5f7-light.png) _In 1989 the average first-time buyer put down 5%. Today it is approaching 15% – and the average first-time buyer is 34, against 23 in 1960._ The regulator has, to be fair, started to move – on the other constraint. In July 2025 the Bank of England began [loosening ](https://www.bankofengland.co.uk/prudential-regulation/publication/2025/july/pra-review-of-the-lti-flow-limit-rule-and-offers-interim-mbc-statement)[the loan-to-income flow limit](https://www.bankofengland.co.uk/prudential-regulation/publication/2025/july/pra-review-of-the-lti-flow-limit-rule-and-offers-interim-mbc-statement), and this April the PRA and FCA [proposed removing the firm-level 15% cap on high loan-to-income lending](https://www.bankofengland.co.uk/prudential-regulation/publication/2026/april/high-loan-to-income-lending-consultation-paper) altogether, keeping only the aggregate limit. Direction of travel matters, and this is the right direction. But it addresses how much income a buyer can borrow against, not the capital treatment that makes the high-LTV loan itself unprofitable to write. The deposit barrier stands. _(Neil in the margin: A separate lever from LTV: it caps what share of a lender's new mortgages can go to borrowers stretching past 4.5× income. As Neil stresses, easing it helps big borrowers, not thin deposits.)_ One other point about the affordability of owning rather than renting. On a like-for-like basis, renting is more expensive. On the assumptions above, the average monthly repayment of a first-time buyer, on joint incomes, is £1,200 on a 90% LTV 25-year mortgage. According to ONS data the equivalent rent on the same property is £1,388 – which makes sense given that the mortgage rate is currently just under 5% and gross rental yields, what the tenant pays, are at 6%. And that is on a 25-year term: most lenders report customers now opting for 30- and 35-year terms, which on a cash basis make the mortgage cheaper still relative to rent. _(Neil in the margin: Annual rent as a percentage of the property's value, before costs. A 6% gross yield exceeding the ~5% mortgage rate is why, on his figures, buying beats renting.)_ To complete the affordability picture, here is a chart of real house prices going back to the 1970s. ![Real average house price](https://r4at4qm6kmohrtvq.public.blob.vercel-storage.com/charts/chartDoc.housing.c3-real-house-prices-26198c5f713b-light.png) _Real prices peaked in late 2021 and have fallen 13% since. The average is back to its 2006 level – twenty years with no real gain._ Contrary to much of the popular commentary, real average house prices in the UK have been falling for nearly five years – down 13% from their late-2021 peak – and are now back to where they were twenty years ago, before the financial crisis. One more pillar of the growing-inequality myth kicked away by the facts. ## Regional prices, and a lesson for investors There is one more aspect of this debate I want to cover: house prices and regional variation. It carries an important parallel for stock market investors, because in housing as in equities, future returns are highly correlated with starting valuations. ![Five regions, five very different six years](https://r4at4qm6kmohrtvq.public.blob.vercel-storage.com/charts/chartDoc.housing.c4-regional-index-5c0d7f4e5243-light.png) _London, with the highest starting valuations, has managed 7% in six years. The North West, among the cheapest large regions on price/earnings, is up 43% – six times as much._ Perhaps not surprisingly, the regions with the highest house prices relative to incomes have fared worst since 2020 – London, by some margin, tops that particular league – and those with the lowest have performed best. The next chart maps the change in house prices since 2020 against the house price/earnings ratio at the start of the period. _[Chart: Expensive in 2020 predicted weak since — The relationship is strong – an R² of 0.89. The price you start at does most of the work in the return you end up with.]_ Just as in the stock market, overvalued houses have performed poorly relative to undervalued ones – in the same way that ten-year equity returns are highly correlated with the starting price/earnings multiple. Valuation is not a timing tool, in houses or in shares, but over long horizons it is the dominant force. _(Neil in the margin: A staple caveat: cheap can get cheaper and dear can get dearer for years. Starting valuation predicts long-run returns well but tells you nothing about next quarter.)_ The same regional lens is worth applying to affordability itself, because the national average conceals more than it reveals. ![Where the payment burden actually bites](https://r4at4qm6kmohrtvq.public.blob.vercel-storage.com/charts/chartDoc.housing.c7-regional-burden-18cba9bf62f5-light.png) _The UK average hides a wide range: under a quarter of take-home pay in the North East against nearly two-thirds in London. The affordability problem is a London and South East story, not a national one._ A first-time buyer in the North East commits under a quarter of joint take-home pay to the mortgage; in London it is nearly two-thirds. Where the affordability complaint is real, it is a London and South East one – and falling prices and rising wages there are correcting it, slowly, by exactly the mechanism the scatter above describes. ## Summary The popular narrative – that the UK housing market is out of reach for young people because of affordability, and that this is an example of gross intergenerational unfairness – is false. For first-time buyers, servicing a mortgage on a typical first home is as affordable as it has been on average over the last 55 years, and much more affordable than on many occasions over that period. It is also considerably cheaper than renting the same property. The genuine problem young people face is saving a much larger deposit, and that is the product of bank regulation – the rules governing how much loss-absorbing capital banks must allocate to higher-LTV loans the PRA deems high risk. In the late 1980s regulators thought 5% deposits appropriate for first-time buyers; today’s rules make such loans unprofitable to write, and so banks don’t write them – and nor would borrowers want to pay the rates that would make them economic. This is a direct legacy of the financial crisis, and I can understand the reluctance to reverse the caution. But as my parents used to tell me, two wrongs don’t make a right. The fact that regulators were asleep at the wheel twenty years ago, after a prolonged period of extraordinary growth in mortgage lending and house prices, does not make excessively cautious regulation appropriate now. Let’s not forget the regulators of that era were happy for Northern Rock to sell 125% LTV mortgages – after the sustained run of real house price growth visible in the chart above. _(Neil in the margin: Northern Rock's "Together" product lent more than the house was worth. When funding markets froze in 2007 it triggered the first UK bank run since Victorian times and a government bailout.)_ The circumstances today could not be more different. Mortgage approvals averaged 1.25 million a year between 1998 and 2007; since then they have averaged 748,000 – down over 40%, for more than fifteen years. The housing market is of pivotal importance to the UK economy whether we like it or not, and it has been effectively comatose for the last fifteen years. It is time bank regulation reflected the reality of today’s economy and housing market rather than the one that existed twenty years ago. Home ownership, contrary to the popular narrative, is absolutely within young people’s reach – what stands in the way is a rule written for a different world.