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Affordability situation for first-time buyers is challenging, says Nationwide

Posted on January 13, 2023 by Kate Saines in What Mortgage Online

Soaring house prices during the pandemic combined with surging mortgage rates and slower relative growth of incomes have created greater barriers for first-time buyers.

This is according to a report published today by Nationwide Building Society, which has laid out the affordability challenges for those trying to take their first step on the property ladder.

The report by one of the UK’s biggest mortgage lenders may be gloomy reading, but the prospects for the year ahead look rather less depressing as the report also predicts mortgage rates will settle in 2023.

However, the main focus is on how the recent mortgage price hikes caused by the mini-budget in September have taken the cost of mortgage repayments so high, they now make up much larger proportion of the average first-time buyer’s income.

Taking a first-time buyer with an 80% loan-to-value mortgage – in other words, a buyer with 20% mortgage – Nationwide revealed they would be using 39% of their take home pay on their monthly repayments.

Back in 2020 they would have been paying below 30%.

What’s more, said Nationwide, raising a deposit is no less challenging. The problem is since the start of the pandemic house prices have grown by 19%. Meanwhile, incomes rose by a far less buoyant 9%.

As such, a 20% deposit on a typical first-time buyer home is now equivalent to 112% 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% recorded earlier in 2022.

Andrew Harvey, senior economist at Nationwide said whilst raising a deposit was a hurdle and affordability was a huge barrier, the situation was not entirely hopeless.

“There is some scope for affordability to improve a little in the year ahead,” he said.

“Longer-term interest rates, which underpin mortgage pricing, have fallen back towards the levels prevailing before the mini-Budget.

“If sustained, this should feed through to mortgage rates and improve the affordability position for potential buyers, albeit modestly, as will solid rates of income growth (wage growth is currently running at c.7% in the private sector), especially if combined with weak or negative house price growth.”

However, he added the overall affordability situation looked set to remain challenging in the near term.

“Saving for a deposit will still be a struggle for many. The 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 (albeit from a robust starting position).

“Moreover, rents have also been rising at their strongest pace on record (on data extending back to 2005 for England), which will be a further drag for those currently renting who are looking to buy a home (especially since they also tend to spend a larger share of their income on housing costs than owners with a mortgage).”

Getting help with your mortgage

For those who are looking to get onto the property ladder, the advice is to speak to a broker. Even if you aren’t quite ready to make your move just yet, many mortgage brokers will offer advice or support in advance.

Indeed, Tom Bill, head of UK residential research at Knight Frank, said in response to Nationwide’s report – stay close to your mortgage broker. Mortgage Tree is there to help with any questions you may have.

“This is a confusing moment for anyone buying a property,” he said. “Mortgage rates are three 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.”


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