Interest rates: Martin Lewis on affect on mortgage applicants
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During the pandemic, demand for houses in areas near Britain’s shores shot up, driving up prices in turn. More than half of the areas in which first-time buyer affordability declined the most during the pandemic were by the coast, according to research by online real estate portal Rightmove. Now, as interest rate hikes increase the cost of mortgages and inflation takes a record bite out of real wages, first-time buyers face an unprecedented affordability crisis.
Homes for the average first-time buyer in Britain are now 7.2 times the average salary, up from 6.9 times in 2019, according to the research published by Rightmove on Wednesday.
The average 10 percent deposit for a first-time-buyer home also rose by 17 percent during this time, to £22,409.
This comes days after Labour Force Survey estimates revealed that in the April to June quarter, real wages – pay adjusted for inflation – fell by a record three percent.
Following the recent hike in interest rates, the average monthly mortgage payments for first-time buyers with a 10 percent deposit is now up 39 percent on 2019, at now £1,032.
Homes by the sea surged in popularity during the pandemic, as buyers sought to escape the confines of cities.
However, this meant that property prices in coastal areas increased far quicker than salaries, freezing out many first-time buyers.
Tim Bannister, Rightmove’s director of property data, said: “The current picture of how affordability has changed for new first-time buyers trying to take out a mortgage looks very different in different parts of Britain.
“It’s much harder for first-time buyers in the areas where prices jumped considerably over the past few years, especially when you add in six consecutive interest rate rises and average local salaries not keeping pace.
“We’re still seeing the effects of the pandemic whereby prices for homes near the sea are at a premium, with house prices quickly outpacing local salaries.”
Analysing the growth in house prices and changes in local salaries, Rightmove found that more than half of the top 10 areas where first-time buyer affordability declined the most were by the sea.
Top of the list came Adur in West Sussex, where the average asking price for a first-time-buyer home increased from 8.7 times the average local salary before the pandemic to 11.6 now.
Hertsmere in Hertfordshire was second, where average asking prices are now 11.8 times the average salary for the area, compared with 9.6 times in 2019.
Richmondshire in North Yorkshire came in third, where average first homes are 8.2 times the local salary, up from six times in under three years.
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The study considers the average single first-time buyer and assumes they were able to put up a 10 percent deposit towards a mortgage on a typical first home in the area, defined as having two bedrooms or less.
Affordability is determined by relating these prices to the latest localised salary data collected by the Office for National Statistics (ONS).
Mr Bannister added: “However, despite stretched affordability, we’re not currently seeing rising prices and interest rates having a significant impact on first-time buyers wanting to move.
“Though demand for first-time buyer homes has expectedly eased from the heady levels of last year, it’s still significantly higher than it was back in 2019, suggesting many first-time buyers are factoring in rate rises into their own affordability.”
Conversely, the majority of areas in which affordability improved throughout the pandemic are in London and traditional commuter areas, as waning demand allowed local salaries to increase faster than house prices.
According to Rightmove, average asking prices in Lambeth are 11.8 times the average salary for the borough, down from 13.3 times before the pandemic.
In Ealing, the price of average first-time buys fell from 11.7 times salaries three years ago to 10.3 times today.
In Reading, first homes are now 6.8 times the average salary compared with 7.8 times in 2019.
Kate Eales, of Strutt & Parker estate agents, said: “Affordability is a long-standing barrier for first-time buyers looking at homeownership.
“There are several factors at play here.
“Across the country, the pipeline of new properties coming to the market for sale has not kept up with demand, and there is also a lack of suitable housing coming through for first-time buyers.
“A decade of mostly upward rents has put further pressure on saving for a deposit, and a rising market means that the goalposts have kept moving.
“All this has been exacerbated in recent months with rising interest rates, making mortgages more expensive, while inflation is driving down real income.
“It’s no surprise affordability will be felt most in coastal areas and around major urban centres.
“These locations are in high demand and first-time buyers will be competing with second steppers and downsizers, who are likely to be in a stronger financial position to secure a property.
“But those who are able to take their first step on the housing ladder largely remain undeterred.”
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