Rising mortgage costs already eating into a third of annual income, research finds
The rising cost of a mortgage is already eating into nearly a third of homeowners’ annual income, according to new research, casting even more concern over looming rates rises.
UK households are this year facing a historic cost of living squeeze, which is expected to prompt the Bank of England to hike interest and mortgage rates in the coming months as it seeks to tame inflation, which is currently at a 40-year high of 9.1 per cent.
According to research by estate agent comparison site GetAgent, the proportion of disposable household income needed to meet the growing cost of mortgage repayment has hit 27.6 per cent – the highest in a decade.
Last year, the average mortgage rate for a three-year fixed product was at a decade low of 1.55 per cent – but with house prices hitting an average of £250,000, according to the Nationwide House Price Index, the average homebuyer was repaying around £8,000 to £9,000 per year on their mortgage.
Prospective buyers are now facing higher mortgage rates than six months ago, and economists expect the Bank of England to hike rates further to around 4.62 per cent on the low-end of the scale and some seven per cent at the top-end, before the end of the year.
Should the Bank of England follow through with low-end forecasts, borrowing for a home will hit levels last seen in April 2010, when the average house price was around £168,719 as opposed to the £271,613 it is today.
While the cost of borrowing remains low when compared to the rates seen a decade ago – house prices have swelled by nearly £100,000.
“We’ve now seen a number of interest rate hikes in quick succession and this will understandably come as a worry to the nation’s homebuyers, who will be facing higher mortgage costs as a result,” CEO and co-founder of GetAgent, Colby Short, said.
“Unfortunately for those struggling to climb the ladder, there’s currently no end in sight where the pandemic house price boom is concerned and it’s only likely that mortgage rates will continue to climb for the foreseeable future.”