Higher rates drive second consecutive monthly decline
Mortgage affordability declined for a second consecutive month in January, according to new analysis from mortgage and protection network Stonebridge.
The group’s bi-monthly Mortgage Affordability Index found that the proportion of income spent on mortgage repayments rose to 37% in January, up from 36.5% in December and 36.3% in November. The report pointed to rising loan amounts, sluggish wage growth and an uptick in mortgage rates as the main contributors to the trend.
Stonebridge data showed the average loan size increased by 1.4% to £192,114 in January, while average earnings grew just 0.5% during the same period, based on Office for National Statistics figures.
Meanwhile, the average interest rate on new mortgage lending rose by four basis points to 4.51% — its first increase in five months, according to Bank of England figures.
Despite the back-to-back decline in affordability, conditions remain more favourable compared to late 2023. In December 2023, mortgage repayments accounted for 42.4% of the average salary. The long-term average stands at 35.9%, according to Stonebridge.
“Mortgage affordability has continued to be tight for the second consecutive month as rising house prices push loan sizes higher and mortgage rates edged up,” said Rob Clifford (pictured), chief executive of Stonebridge. “But in context, remember that affordability remains significantly better than at the start of last year, and affordability will definitely improve as rates fall in coming months.”
Clifford also noted that although the Bank of England has held interest rates steady, pressure is building for rate cuts.
“Inflation remains a concern, but much of the recent increase is imported, driven by rising energy costs and a strong dollar rather than by surging domestic demand,” he said.
“At the same time, the UK economy is struggling for momentum. If growth continues to stall, the MPC may have little choice but to step in to provide support. That could lead to lower borrowing costs in the months ahead, offering much-needed relief to mortgage borrowers, who are still grappling with the impact of the cost-of-living crisis.”
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