Mortgage costs relative to income in the United Kingdom have risen to their highest level in years.
The latest data published by mortgage lender Nationwide Building Society Friday (Jan. 13) revealed that in the final quarter of 2022, first-time buyers were spending on average 39% of their take-home pay on mortgage repayments, the highest level since 2008.
As the building society explained in its January affordability report, higher mortgage rates have been the biggest factor affecting housing affordability for potential buyers over the past year.
As Andrew Harvey, a senior economist at Nationwide commented in the report, “this trend began in earnest towards the end of 2021, with typical five-year fixed rates rising from 1.3% in late 2021 to 2.9% by mid-2022.”
But while initial raises mirrored interest rate hikes introduced by the Bank of England, Harvey said in the report that the Truss government’s mini-budget and the ensuing market turmoil it kicked off in September caused mortgage rates to surge.
“While wider financial market conditions had stabilized by the end of 2022, with market interest rates falling back towards the levels prevailing before the mini-budget, mortgage rates are taking longer to normalize,” he added, per the report.
Nationwide found London to be the part of the country where people spend the most on mortgage payments — on average nearly 70% of their take-home pay.
What’s more, there is little respite for renters. Nationwide reported that rents have been rising at their strongest pace since it started collecting data in 2005. This will make it even harder for prospective buyers to save for a mortgage deposit while still paying rent.
With mortgage repayments taking up so much of homeowners’ incomes, the U.K.’s largest lenders have agreed on measures to help struggling borrowers.
In December, Barclays, HSBC, Lloyds, Nationwide, NatWest Group, Santander and Virgin Money agreed with the government to help support struggling mortgage holders.
As PYMNTS has reported, support measures could include extending the terms of mortgages to make monthly payments lower, a short-term reduction in monthly payments and accepting interest-only payments for a period.
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