Before the BoE started to push up mortgage costs in 2021, a new buyer earning an average income would have expected to spend around 30pc or less of their take home pay on mortgage payments.
In the wake of the September 2022 Liz Truss/Kwasi Kwarteng mini-Budget, that share for a first-time buyer temporarily surged to near-50pc.
While the cost for a first-time buyer has fallen since then, they can still expect to spend close to 40pc of take home pay on mortgage costs – even on the best-priced mortgage deals at around 4pc. That is still expensive.
But despite the lingering headwinds, demand seems to have turned a corner. The closely-watched RICS survey showed that new buyer enquiries rose in January for the first time since April 2022.
Judging by the average of the Halifax, Nationwide, Rightmove and HM Land Registry indexes, prices at the start of the year have risen by around 1pc from their Q3 low.
While stronger household balance sheets and more resilient banks remain the key reason why rising interest rates have not crashed the market, labour market resilience explains why house prices have held up even better than expected.
During the 2000s, homeowners had been artificially boosting their purchasing power via home equity withdrawal – to the tune of 5pc of their post-tax income in the boom years.
As long as house prices rose, banks had been happy to recklessly over-extend credit to households. But once house prices started to fall, the banks turned off the taps and the game unravelled. The resulting income shock hit consumer spending which in turn caused unemployment to rise, adding to the housing market correction.
But homeowners have been paying down their mortgages over the past 15 years. As a result, the negative feedback loop of falling house prices and rising unemployment via the consumption channel never set in. Instead, employment has remained close to all-time highs.
As long as people keep their jobs, the sensible improvements in mortgage regulations after the GFC now ensure that new mortgages remain affordable – even if painfully so – in extreme interest rate scenarios.
Leaning back, it is even more obvious why the panic over a housing market crash was overblown. So is it time to turn positive on housing? Yes, but with an important caveat.