Mortgage repayments for new buyers now ‘close to pre-2008 levels’

Senior economist at the bank, Andrew Harvey, said today (January 13) the figure was “well above the long run average”, and is compounded by a market which still maintains high house prices relative to buyers’ earnings.

The barrier to homeownership has also grown due to higher mortgage interest rates, which reached their highest levels since 2010 last year - over four times higher than the rock bottom lows of 2021.

The reality is that we haven't been building enough houses for years now, so the available stock is becoming unaffordable to many.Scott Taylor-Barr, Carl Summers Financial Services

Brokers have said their clients are having to revise their price ranges, rely more heavily on help from family, and in some cases delay their plans to get onto the housing ladder after being “nearly there”.

Many are calling for more government support to ease the strain.

“This is desperately sad, but unsurprising,” said Scott Taylor-Barr, a financial adviser at Carl Summers Financial Services.

“Everything seems stacked against the first-time buyer now, especially as the Help To Buy equity loan scheme was closed too, with no replacement in sight.

“The reality is that we haven't been building enough houses for years now, so the available stock is becoming unaffordable to many.”

Raising a deposit remains a major hurdle for prospective buyers, according to Nationwide’s affordability report published today (January 13).

Economist Harvey said in recent quarters, strong wage growth and a “small” (2.5 per cent) fall in house prices between August and December 2022 has led to a modest fall in the house price to earnings ratio. 

“This has done little to improve the situation, as it follows several years when house price growth outpaced earnings by a wide margin,” Harvey explained.“

Between the start of the pandemic and the end of 2022, house prices increased by 19 per cent, while incomes rose by a more modest 9 per cent. 

At the end of 2022, the UK first time buyer house price to earnings ratio stood at 5.6, the same level as at the end of 2021.

And while UK households, in aggregate, saved £200bn more in bank deposits than they would have expected over the pandemic, Harvey said the majority of this was accrued by older, wealthier households and therefore probably helped fewer first time buyers step into the market than it might first appear.

“Cost of living is set to outpace earnings growth by a significant margin again this year, while labour market conditions are widely expected to weaken,” Harvey explained.

“Rents have also been rising at their strongest pace [since 2005,when record began], which will be a further drag for those currently renting who are looking to buy a home.”

Across UK regions, affordability remains the most challenging across London and the south of England. Scotland and the North continue to be the most affordable regions but, even there, Nationwide’s report shows mortgage payments as a share of take-home pay are at their highest level for more than a decade

Only around 10 per cent of local authorities have seen an improvement in affordability over the past year.

Curbing buying power

Managing Director at J Finance Ltd, Rowan Frayling, said he has clients who are currently house hunting, but that they have had to revise their price range as a result of the significantly higher mortgage payments.

“A client who was buying at £375,000 in May last year until the transaction fell through, is now only able to look at properties with a maximum value of £335,000.

“The resulting mortgage payments are still £100 more a month with the same percentage deposit.”

Some brokers say the worsening affordability picture means longer waits for those who were nearly there.

A scheme for home builders and buyers alike “is urgently needed” to stimulate the affordable housing sector.Samuel Mather-Holgate, Mather and Murray Financial

“Some may have had to spend that deposit due to costs going up,” said Mortgages For Actors founder, Austyn Johnson.

“Some will have made their deposit, but now want to wait in case they need it for financial stability. 

“Affordability has been hit, and house prices will slow or plateau due to it.”

House prices are predicted to fall anywhere between 5 and 15 per cent, and have been on the decline for the past three months.

More govt help needed

With the wind up of the government’s Help To Buy scheme this year, brokers have long been calling for a replacement to help first-time buyers afford a mortgage.

Adviser at Mather and Murray Financial, Samuel Mather-Holgate, said a scheme for home builders and buyers alike “is urgently needed” to stimulate the affordable housing sector. 

“Help to Buy wasn't perfect by a long shot, but when it was removed it dried up an already parched sector of the housing market,” said Mather-Holgate.

“Home builders also need incentives to build affordable housing. Planning needs to be easier as there is a massive shortage of housing on this island.”

ruby.hinchliffe@ft.com