Spike in mortgage costs

Following the mini-budget announcement by the Liz Truss government in September 2022, the housing market experienced a period of turbulence. This resulted in a spike in mortgage cost, with the average first-time home buyer paying a hefty £1,218 monthly on their mortgage last October.

The budget, prepared by former Chancellor Kwasi Kwarteng, included several unfunded tax cuts and spending commitments. It led to uncertainty and prompted many lenders to withdraw their mortgage products from the market. This action and predictions of rising interest rates contributed to the increase in mortgage costs.

ELEVATED MORTGAGE RATES

According to recent data, as a result, first-time home buyers spend almost £200 more monthly on their mortgage payments than last year[1]. This increase is due to a record average asking price and elevated mortgage rates. First-time buyers with a 15% deposit currently pay an average of £1,056 per month, compared to £865 last year. However, this figure is still significantly lower than the peak average of £1,218 per month recorded in October.

AVERAGE ASKING PRICES

This analysis is based on the average asking price for properties typically sought by first-time buyers (properties with two bedrooms or fewer) and the average rate for a five-year fixed, 85% Loan-To-Value (LTV) mortgage spread over 25 years. At the time of writing, the average rate for such a mortgage is 4.44%, down from 5.89% in October but up from 2.76% in May last year.

The average asking price for a property suitable for first-time buyers is now at a new record of £224,963. Despite these financial challenges, demand from first-time buyers remains strong, with demand in this sector currently 11% higher than in 2019.

SUITABLE FOR FIRST-TIME BUYERS

Factors driving this determination among first-time buyers include stabilising mortgage rates and a fast-paced rental market. The average asking rent for a property suitable for first-time buyers is now £1,120 per month, an increase of 11% compared to last year.

The average monthly mortgage payment for someone taking out a mortgage is beginning to steady as mortgage rates stabilise. For example, someone purchasing a property at the current average asking price of £366,247, with a five-year fixed, 15% deposit mortgage, would now pay £1,720 monthly. This is less than the £2,012 per month recorded last October and slightly less than the £1,799 monthly recorded in January.

BUYING PROPERTY STILL COMPELLING

While the cost of buying a home has increased, the drop in mortgage costs indicates that the market is beginning to adjust to the changes brought about by the mini-budget. Despite these challenges, first-time buyers who can raise their deposit still find buying compelling. Potential buyers must assess their circumstances and weigh their affordability based on current rates alongside the potential cost of waiting or continuing to rent.

Don’t forget, our professional friendly advisers are on hand to support you and can help you explore all of your options.

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