SPIKE IN MORTGAGE COSTS

In the wake of the mini-budget announcement by the Liz Truss government back in September 2022, the housing market entered a period of significant instability. This turbulence led to a surge in mortgage expenses, with the average first-time home buyer shelling out a hefty £1,218 per month towards their mortgage by October of that year.

Crafted by former Chancellor Kwasi Kwarteng, the budget presented several tax cuts and spending commitments without clear funding sources. This lack of clarity spurred uncertainty in the market, causing many lenders to retract their mortgage offerings. Consequently, this move, coupled with predictions of escalating interest rates, fueled the hike in mortgage expenses.

Recent data indicates that first-time home buyers now spend nearly £200 more per month on their mortgage payments compared to the previous year. This increase stems from both a record average asking price and elevated mortgage rates.

Presently, first-time buyers with a 15% deposit are facing an average monthly mortgage payment of £1,056, a significant leap from the £865 seen just a year ago. Despite this uptick, it remains notably lower than the peak average of £1,218 observed in October.

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

Meanwhile, the average asking price for a property suitable for first-time buyers has surged to a new record of £224,963. Despite these financial hurdles, demand from first-time buyers remains robust, with a current 11% increase compared to 2019.

Factors propelling this determination among first-time buyers include stabilizing mortgage rates and a brisk rental market. The average asking rent for properties suitable for first-time buyers has climbed to £1,120 per month, marking an 11% increase from last year.

As mortgage rates begin to stabilize, the average monthly mortgage payment for homebuyers is starting to level off. For instance, 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 figure is lower than the £2,012 per month recorded last October and slightly less than the £1,799 monthly recorded in January.

Despite the rising cost of homeownership, the decline in mortgage expenses suggests that the market is gradually adapting to the changes introduced by the mini-budget. Despite these challenges, first-time buyers who manage to gather their deposit still find the prospect of buying a home compelling.

Potential buyers must carefully evaluate their circumstances and consider their affordability in light of current rates, balancing this against the potential costs of waiting or continuing to rent.