Mortgage costs in the UK rise to the highest percentage of earnings since the financial crisis

According to mortgage provider Nationwide, UK mortgage payments have risen to their highest level since the 2008 financial crisis, straining homeowners’ budgets and making it harder for Brits to buy a first property.

First-time buyer mortgage payments accounted for 39 percent of take-home salaries in the last quarter of 2022, up from 33 percent in the previous three months — and the highest since 2008 — data released Friday showed.

High mortgage payments are putting pressure on homeowners’ finances and making the housing stock less affordable after the pandemic sparked a price boom.

“After 13 years of extremely low borrowing costs, monthly spending will increase by hundreds of pounds while cost of living pressures are already mounting,” said Tom Bill, Knight Frank’s head of UK housing market research.

Andrew Harvey, senior economist at Nationwide, said the fall in housing affordability over the past year was mainly due to “the increase in the cost of servicing the typical mortgage as a result of the rise in mortgage rates”.

Line chart of first-time buyers, % of take-home salary, showing UK mortgage payments have increased

Mortgage rates have risen over the past year as the Bank of England hiked rates to counter high inflation. Interest rates then rose following Kwasi Kwarteng’s Sept. 23 mini-budget, which included large unfunded tax cuts. They fell behind after Jeremy Hunt became chancellor but kept on the rise.

According to Nationwide, house prices in the UK are up 19 per cent since the pandemic began, while income is up 9 per cent. As a result, value for money for first-time buyers was 5.6 percent in the fourth quarter of 2022, just below the 40-year high of 5.9 percent in the previous three months.

Harvey reckons affordability “will remain a challenge” in the short term, with many Brits struggling to save for a down payment. The cost of living is likely to significantly outpace income growth again this year, while the labor market situation is expected to weaken.

A recent rise in rents, fueled by increased demand from people who can’t afford to buy, is expected to act as a further drag on prospective homeowners, according to Nationwide.

The cost of servicing a typical mortgage is now above the long-term average in all regions, but is most acute in London and southern England, where it accounts for 66 and 47 percent of wages, respectively, according to the report.

Nationwide calculated that it would take a typical London earner more than 15 years to save for a 20 per cent deposit – more than twice as long as in Scotland and northern England.

Earlier this week the Financial Conduct Authority said more than three-quarters of a million UK households are at risk of defaulting on mortgage payments over the next two years. Mortgage costs in the UK rise to the highest percentage of earnings since the financial crisis

Adam Bradshaw

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