Lender calculations show that mortgages are becoming unaffordable
Calculating the average monthly mortgage repayment as a proportion of average monthly salary, specialist property lender Octane Capital has discovered that mortgages are on their way to being as unaffordable today as they were during the great recession of 2008.
Based on the current average house price of £276,019 and a three-year fixed-rate mortgage with a 75% LTV, a buyer today would be looking at a loan amount of £207,014 once a 25% deposit (£69,005) has been accumulated.
With an average rate of interest of 1.84% paid over a 25-year term, this equates to an average monthly mortgage repayment instalment of £859.41.
Meanwhile, the average annual gross salary in the UK is £31,447, which works out at £2,621 per month.
Therefore, the average mortgage repayment today equates to 32.8%, or a little less of a third of the average monthly income.
This is 5% higher than it was in pre-pandemic December 2019 at 27.8%, and 4.7% higher than five years ago at 28.1%.
The latest figure is also getting very close to the level it was at during the recession of 2008–2009 in the aftermath of the financial crisis.
During that time, the average mortgage repayment accounted for 34.3% of monthly income, just 1.5% more than today.
Jonathan Samuels, chief executive at Octane Capital, noted that the cost-of-living crisis is a current cause of great concern, and many homeowners are not only combating the inflated cost of day-to-day living, but also the monthly cost of their mortgage, following a string of interest rate increases.
“Wage growth has simply failed to keep pace with these rising costs, and so the proportion of our income required to cover our monthly mortgage commitments is now substantially higher than it has been for many years,” he said.
Unfortunately, Samuels added, this cost only looks set to increase with interest rates expected to rise further throughout the year.
“The best advice for those currently struggling is to consult a mortgage professional and see if they can swap to a product offering a better rate. For those currently looking to buy, it’s vital to factor in any potential increase and not to borrow beyond your means based on current rates,” he stressed.
“While the current cost of borrowing may still remain fairly favourable, it’s vital you consider what any further increases may mean for your financial stability, as those borrowing right up to their limits initially are sure to struggle further down the line.”
