Low mortgage rates helping to improve affordability

Posted on Monday, February 25, 2019

Possessing a property with a mortgage is more affordable now than it was 10 years ago, according to Private Finance.

This is despite house prices having increased 29 per cent within that time frame, adds the mortgage broker.

It concludes that recent low mortgage rates coupled with high wage growth have combined to help keep the cost of a mortgage stable in the face of this house price growth.

Research provided by the Private Finance shows that in 2008, mortgage repayments for the average borrower accounted for 43 per cent of their monthly income. In contrast, this figure stood at 31 per cent in 2018.

Furthermore, the average monthly repayment figure has declined in the last 10 years, from £804 to £700, a decrease of 13 per cent. This is despite the average house price growing by £51,660 over the same period.

Taking a longer view, comparing the affordability of mortgages from 1998 to 2018, the statistics show there has been little change.

In 1998, the average homeowner spent 30 per cent of their monthly income on mortgage payments; In 2018, this figure stood at 31 per cent.

Within the same time frame, the average UK house price has increased by 225 per cent, representing a rise of £70,313 to £228,513.

According to the firm, house prices now represent 8.5 times annual income, compared to 4.7 times in 1998.

Examining the monthly mortgage repayment figure between 1998 and 2018 shows an 88 per cent increase. This is representative of a rise from £373 to £700.

In relation to this, average monthly earnings have increased 78 per cent since 1998, from £1,261 to £2,249.

Bank of England data reveals that in 1998, the average two-year fixed rate at 75 per cent LTV was 7.01 per cent, compared to 1.68 per cent in 2018.

Private Finance director Shaun Church comments: “With the value of property skyrocketing over the past 20 years, it is undeniable that first time buyers today face a far greater challenge stepping onto the housing ladder.

“However, once buyers have raised their deposit, the ongoing cost of owning a home is less of a financial strain than that faced by buyers a decade earlier, and broadly in line with affordability levels seen 20 years ago when property values were much lower.”

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