New data released by Nationwide has revealed that the affordability strain on borrowers’ pockets is nearing an all-time high.
Indeed, the building society says first-time buyers are now spending as much as 39% of their income after tax on mortgage repayments based on an 80% LTV mortgage at 5.5% interest, up from 33% in the three months prior and the highest level since 2008.
This comes amidst several successive base rate increases pushing interest rates far above what homeowners have been used to after 13 years of low borrowing costs. According to the ONS, over 1.4 million households will subsequently be seeing an increase in interest rates upon renewal in 2023.
This heightened cost of borrowing taken alongside the difficulty of saving for a deposit means it is no surprise first-time buyers and would-be first-time buyers alike are set to struggle in the short term.
Looking on the bright side
Despite the obvious concerns surrounding current affordability, there is no doubt that things are looking less gloomy than they once were in the aftermath of the now infamous “mini-budget” in September.
Nationwide said longer-term interest rates, which underpin mortgage pricing, have fallen back towards the levels prevailing before the mini-budget.
This should be passed onto mortgage rates before long, easing the strain on borrowers.
Notably, there are signs that this may already be the case. Nationwide, for example, recently announced that it has cut rates on its mortgage products by up to 0.60 percentage points. TSB announced it was reducing its fixed five-year rate for both purchase and remortgage by up to 1.3 percentage points. Natwest has also cut rates on some of its products with core remortgage rates down by as much as 0.51 percentage points.
This, taken with the government extending its support for high-LTV mortgage borrowers in December through the mortgage guarantee scheme, means there looks to be light at the end of the tunnel for borrowers.
This is corroborated by Bank of England data which stated mortgage rates fell in December, commenting upon which was Anthony Codling, CEO, twindig:
“If we combine the impact of falling mortgage rates and softening house prices, many would-be homebuyers may find themselves priced back into the housing market suggesting that, despite challenges elsewhere in the economy, it’s not all doom and gloom.”
