House prices hit a record. In real terms, they're 13% down

Good morning,

If you look at the latest data, UK house prices just hit an all-time high.

The average home now costs £273,037, the most it's ever been.

So homes have never been more expensive, right?

Not quite. Once you adjust for inflation, prices are actually around 13% cheaper than they were in 2021.

Both of those are true. Let me explain.

Let’s dive in.

In this newsletter, you'll find...

• Record Prices, Smaller Pounds

• If you remember one thing, make it this

• Feedback

Record Prices, Smaller Pounds

Quick jargon check first. "Real terms" just means a price adjusted for inflation (how fast everyday things are getting more expensive).

Think of it like this. If your salary goes up 2% but your shopping goes up 5%, you didn't get a pay rise. You got a pay cut wearing a nice outfit.

Houses work the same way.

Inflation (CPI) just jumped to 3.5%, while house prices grew just 0.9% over the past year.

So I ran the official numbers myself, adjusting Land Registry prices for inflation.

Here's what came out:

• In real terms, UK prices peaked in September 2021. They're now 12.9% below that peak.

• They're even 11% below the 2007 peak, the one just before the financial crash.

• 345 out of 349 local areas have fallen in real terms since August 2022.

Translation?

We've had a house price correction (a sustained fall in prices). It just happened slowly, over five years, quietly hidden by inflation.

No dramatic headlines. No panic selling. Just pounds worth less than they used to be.

Where It Hit Hardest

Prime London took the biggest knock. Kensington and Chelsea is down 36.6% in real terms, Westminster 33.5% and Tower Hamlets 30%.

Only four places beat inflation: Calderdale, Oldham, Rochdale and West Lancashire.

Yes, Oldham beat Kensington. Write that one down.

The Bit Nobody's Connecting

While prices quietly slid, rents kept climbing, up 3.8% to £1,406 a month.

That matters because of something called yield. Gross yield is your yearly rent divided by the property price, before any costs. It's basically how hard your money is working.

• The UK average gross yield has gone from 4.93% in 2022 to 6.15% today.

• Yields rose in every single one of the 316 areas I checked.

And here's my favourite stat this week.

Tower Hamlets now yields 6.57%. Manchester yields 6.42%.

Back in 2022 it was 3.92% vs 5.2%. Manchester was miles ahead.

The old rule of "London is for capital growth, the North is for yield" just broke in parts of East London.

So Why Doesn't It Feel Cheaper?

Two words: mortgage rates.

Compared to wages, homes are the most affordable they've been since 2014. The average home now costs 6.9 times average earnings, down from 8.2 times in 2022.

But borrowing got far more expensive. The average five-year fixed deal just hit 6%.

On a 90% mortgage for the average home, monthly payments have jumped from about £970 in 2021 to over £1,500 today.

That's roughly 38% of average pay back then, and 46–48% now.

Cheaper house. Pricier loan. Same headache.

What Do You Do With This?

If you're a first-time buyer: house prices aren't your main enemy right now. Mortgage rates are. When rates fall, all that hidden affordability shows up quickly. Get your deposit and mortgage approval ready before that happens, not after.

If you're an investor with cash or a big deposit: yields are at their strongest in over a decade. Just stress-test your numbers at 6% interest, and remember gross yield ignores costs, empty months and tax.

If you're a landlord: rents are up, but so is your next fixed rate when it renews. Check your remortgage date now.

If you remember one thing, make it this

"Prices are at a record" and "prices are 13% cheaper" are both true. The second one is the story that matters.

When mortgage rates come down, a lot of people will notice at the same time.

Want to be early?

Look up your area's yield, compare it to 2022, and reply with what you find. I'd genuinely love to see it.