First-time buyer mortgage payments now 39% of salary


First-time buyer homes are the least affordable they have been since 2008, warns Nationwide, as mortgage payments eat up 39% of salary

  • In 2021/22 a third of first-time buyers had some help raising a deposit
  • Scotland is the most affordable area to get on the housing ladder
  • Mortgage rates are falling and fixed rates could settle between 4% – 5% this year

Increased mortgage rates have hit housing affordability in the UK, according to new figures from lender Nationwide, with first time buyers now facing levels last seen in the run up to the financial crisis.

For an average first-time buyer with a 20 per cent deposit and a mortgage rate of 5.5 per cent, the payments will make up around 39 per cent of their take home pay.

And despite predictions of a fall in house prices this year, raising a deposit is still a significant hurdle for those saving for their first home.

First-time buyers face a combination of high mortgage rates and unaffordable house prices

Andrew Harvey, senior economist at Nationwide, says it is due to the rapid rise in house prices over the past few years and comparably slow wage growth.

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

‘This in turn means that a 20 per cent deposit on a typical first-time buyer home is now equivalent to 112 per cent of the pre-tax income of a typical full-time employee, a similar level to a year ago, and only modestly below the all-time high of 117 per cent recorded earlier in 2022.’

And while households in the UK saved an extra £200bn over lockdown, the majority was accrued by older wealthier savers, meaning first time buyers are still turning to friends and family for help with a house deposit. 

The data shows that in 2021/22 a third of first-time buyers had some help raising a deposit, up from 27 per cent in the mid-1990s.

Rapid rise: House price increases outpaced wage growth during the pandemic, leaving many struggling to save for a deposit

Rapid rise: House price increases outpaced wage growth during the pandemic, leaving many struggling to save for a deposit

London has the worst house price to earnings ratio in the UK, while Scotland has the best

London has the worst house price to earnings ratio in the UK, while Scotland has the best 

Furthermore, the rise in rents over the past year coupled with the end of the Government’s Help to Buy scheme mean first-time buyers are even more squeezed, especially while inflation continues to outpace wage growth.

Tom Bill, head of UK residential research at Knight Frank said: ‘This is a confusing moment for anyone buying a property. Mortgage rates are 3 percentage points higher than they were this time last year, but are also falling. 

‘After 13 years of ultra-low borrowing costs, monthly outgoings will rise by hundreds of pounds at a time when cost-of-living pressures are already biting. 

‘However, rates are falling as the shock of the mini-Budget works its way through the system, though any decline will not take us back in time much beyond last September. The message in 2023 is stay close to your mortgage broker.’

You can check how much a mortgage deal would cost you each month with our true cost mortgage calculator.

Up and down: Mortgage rates rose rapidly in the wake of the mini-Budget in September but are expected to flatten out this year

Up and down: Mortgage rates rose rapidly in the wake of the mini-Budget in September but are expected to flatten out this year 

Regionally Scotland and the North have the lowest house price to earnings ratio of just 3.4. By contrast, London has the highest ratio of 9.2. At a local authority level Westminster in the capital has the worst affordability at 15.6 and Inverclyde in Scotland is the most affordable at 2.6.

In addition, some areas have become more affordable. Tewkesbury in the South West has seen affordability improve by 0.9 to 5.9, and Brent in London improved by 0.8 to 11.1

There is also good news as mortgage rates are continuing to drop from the highs seen in October. The average two-year fixed rate is now 5.63, down from 5.79 on 1 January, according to Moneyfacts.

The five-year fixed rate average has also fallen, dropping to 5.43 from 5.63 at the start of the month. Most experts now expect rates to settle somewhere between 4 and five per cent this year, with many fixed deals now below 5 per cent despite a succession of base rate increases.   

Samuel Mather-Holgate, financial advisor at Mather and Murray Financial said: ‘Data in this report is no surprise. What’s concerning is the Government seem to be doing nothing about it. 

‘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.’

What to do if you need a mortgage 

Borrowers who need to find a mortgage because their current fixed rate deal is coming to an end, or because they have agreed a house purchase, should explore their options as soon as possible.

This is Money’s best mortgage rates calculator powered by L&C can show you deals that match your mortgage and property value

What if I need to remortgage? 

Borrowers should compare rates and speak to a mortgage broker and be prepared to act to secure a rate. 

Anyone with a fixed rate deal ending within the next six to nine months, should look into how much it would cost them to remortgage now – and consider locking into a new deal. 

Most mortgage deals allow fees to be added the loan and they are then only charged when it is taken out. By doing this, borrowers can secure a rate without paying expensive arrangement fees.

What if I am buying a home? 

Those with home purchases agreed should also aim to secure rates as soon as possible, so they know exactly what their monthly payments will be. 

Home buyers should beware overstretching themselves and be prepared for the possibility that house prices may fall from their current high levels, due to  higher mortgage rates limiting people’s borrowing ability.

How to compare mortgage costs 

The best way to compare mortgage costs and find the right deal for you is to speak to a good broker.

You can use our best mortgage rates calculator to show deals matching your home value, mortgage size, term and fixed rate needs.

Be aware that rates can change quickly, however, and so the advice is that if you need a mortgage to compare rates and then speak to a broker as soon as possible, so they can help you find the right mortgage for you.

> Check the best fixed rate mortgages you could apply for 

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