Monthly mortgage repayments now cost a third of earnings

With cost of living and interest rates on the rise while house prices are through the roof, specialist property lending experts, Octane Capital, has calculated the average monthly mortgage repayment as a proportion of average monthly salary and discovered that mortgages are on their way to being as unaffordable today as they were during the great recession of 2008.

Based on the current average house price is £276,019 and a 3-year fixed-rate mortgage with a 75% LTV, a buyer today would be looking at a loan amount £207,014 once a 25% deposit (£69,005) 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. 

 

Meanwhile, the average annual gross salary in the UK is £31,447 which works out at £2,621 per month. Therefore, the average mortgage repayment today 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. 

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CEO of Octane Capital, Jonathan Samuels, 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. 

 

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.

 

Unfortunately, this cost only looks set to increase as we expect to see interest rates increase further throughout the year. The best advice for those currently struggling is to consult a mortgage professional and see if they can swap to a product offering a better rate. For those currently looking to buy, it’s vital to factor in any potential increase and not to borrow beyond your means based on current rates. 

 

While the current cost of borrowing may still remain fairly favourable, it’s vital you consider what any further increases may mean for your financial stability, as those borrowing right up to their limits initially are sure to struggle further down the line.”

Data tables can be viewed here.

 

Average house price data sourced from UK HPI.

Average earnings/salary data sourced from ONS.

Mortgage interest rate data sourced from BSA/BofE