Surge In Mortgage Rates Hit Housing Affordability As FTB’s Pay 39% Of Net Salary

First-time buyer homes are the least affordable they have been for 15 years owed to higher mortgage rates which are eating up 39% of net salary, according to Nationwide.

Increased mortgage rates have forced many would-be homebuyers to revaluate their plans when it comes to getting a foot on the housing ladder, as housing affordability in the UK continues to worsen.

First-time buyers now facing levels last seen in the run up to the financial crisis.

For an average first-time buyer with a 20% deposit and a mortgage rate of 5.5%, the payments will make up around 39% of their take home pay.

Many analysts predict that house prices will fall this year, but raising a deposit is still a significant hurdle for those saving to purchase for their first home, largely because of the surge in property values over the past few years.

Andrew Harvey, senior economist at Nationwide, commented: “Between the start of the pandemic and the end of 2022, house prices increased by 19 per cent, while incomes rose by a much more modest 9 per cent.

“This in turn means that a 20% deposit on a typical first-time buyer home is now equivalent to 112% of the pre-tax income of a typical full-time employee, a similar level to a year ago, and only modestly below the all-time high of 117 per cent recorded earlier in 2022.”

And while households in the UK saved an extra £200bn over lockdown, the majority was accrued by older wealthier savers, meaning first-time buyers are still turning to alternative means, such as borrowing from friends and family, to help raise enough money for a deposit.

The data reveals that in 2021/22 a third of first-time buyers had some help raising a deposit, up from 27% in the mid-1990s.

Reflecting on the data, Tom Bill, head of UK residential research at Knight Frank commented, “This is a confusing moment for anyone buying a property. Mortgage rates are 3 percentage points higher than they were this time last year but are also falling. After 13 years of ultra-low borrowing costs, monthly outgoings will rise by hundreds of pounds at a time when cost-of-living pressures are already biting. However, rates are falling as the shock of the mini-Budget works its way through the system, though any decline will not take us back in time much beyond last September. The message in 2023 is stay close to your mortgage broker.

“The pandemic changed the affordability map of the UK to some extent as prices rose outside London more quickly but the re-balancing between the capital and the rest of the country still has some way to run. Affordability constraints will become the single-biggest influence on house price growth over the next few years, with Greater London under-performing the rest of the country. We expect prices to grow more in the widening commuter belt around the capital as well as traditionally more affordable parts of the UK.”

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