Scottish Housing Market Review: Q2 2025

7. Mortgage Affordability

As illustrated by Chart 7.1, the share of borrower income taken up by capital and interest payments for new mortgages had reached a low in 2020 due to the fall in interest rates in response to the Covid pandemic. Subsequently, the sharp rise in interest rates translated into a significant increase. For first-time buyers, who tend to borrow a high proportion of the purchase price and are thus relatively more exposed to interest-rate risk (See Chart 5.3), the share increased from a low of 15.3% in Q2 2020 to 20.5% in Q4 2023, although more recently it has fallen back somewhat to 19.9% in Q1 2025 as mortgage rates have eased. For home movers, the share has increased from a low of 15.7% in Q3 2020 to 18.8% in Q1 2025, which is similar to its post-pandemic high of 18.9% in Q3 2023.

Source: UK Finance

Chart 7.2 shows that the average house-price-to-income ratio for new mortgages in Q1 2025 was 3.0 for first-time buyers and 2.7 for home movers, which for each series is the same as its long-term average since Q2 2005.

Source: UK Finance

To make their monthly repayments more manageable, an increasing share of borrowers in the UK have responded by taking out longer mortgages. Chart 7.3, which relates to Scotland, shows that this is part of a longer-term trend.

Source: UK Finance