Thursday, July 7, 2022

Mortgage repayments cost a third of earnings

Mortgage repayments

Mortgages are on their way to being as they were during the great recession of 2008

Mortgages are on their way to being as unaffordable today as they were during the great recession of 2008, adding further financial pressure to homeowners who are struggling with the cost of living crisis.

Specialist property lending experts, Octane Capital, has calculated the average monthly mortgage repayment as a proportion of the average monthly salary and highlights that with the current average house price of £276,019 ($347,558) and a 3-year fixed-rate mortgage with a 75% LTV, a buyer today would be looking at a loan amount £207,014 ($260,668) once a 25% deposit – £69,005 ($86,890) has been accumulated.

With an average rate of interest of 1.84% paid over a 25-year term, this equates to an average monthly mortgage repayment instalment of £859.41 ($1,082).

Meanwhile, the average annual gross salary in the UK is £31,447 ($39,597) which works out at £2,621 ($3,300) per month. Therefore, today’s average mortgage repayment equates to 32.8% of monthly income.

This is 5% higher than it was pre-pandemic (Dec 2019, 27.8%), 4.7% higher than five years ago (2017, 28.1%), and 3.1% higher than it was a decade ago (2011, 29.7%).

This figure of 32.8% also means the real cost of a mortgage is getting very close to the level it was at during the great recession of 2008-2009 in the aftermath of the banking crisis.

During that time, the average mortgage repayment accounted for 34.3% of monthly income, just 1.5% more than today.

Jonathan Samuels, CEO of Octane Capital, commented: The cost of living crisis is a current cause of great concern and many homeowners are not only combating the inflated cost of day to day living, but also the monthly cost of their mortgage following a string of interest rate increases.

He said: At the same time, wage growth has simply failed to keep pace with these rising costs and so the proportion of our income required to cover our monthly mortgage commitments is now substantially higher than it has been for many years.


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