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

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

Mortgage repayments now make up nearly 40 per cent of a first-time buyer’s net take-home pay, which high street bank Nationwide has said is “close to the levels seen in the run up to the financial crisis”.

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.

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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