First-time buyers are set to see monthly mortgage payments increase to more than £1,000 on average following the Bank of England’s decision to raise interest rates by 0.5 per cent.
Average monthly mortgage payments for new buyers were £813 in January this year. But, after six rate rises they have increased to a national average of £1,030 per month for new borrowers, according to Rightmove.
This is equivalent to 40 per cent of new first-time buyer gross salaries for the first time in a decade. This will make it harder for many to secure a mortgage, given strict affordability limits on borrowing introduced in 2014.
Rightmove’s Tim Bannister said: “First-time buyers trying to get onto the ladder are currently facing average monthly mortgage payments that are 20 per cent higher than the start of the year due to rising interest rates and asking prices, and that’s assuming they’ve been able to overcome the hurdles to raise a large enough deposit.
“With each jump in interest rates, home-owners are contributing approximately 1 per cent extra of their gross salary on average towards a mortgage, and a 0.5 per cent increase in the base rate would take average monthly mortgage payments towards 40 per cent of their salary, a level not seen since 2012.”
Simon Gammon, managing partner at Knight Frank Finance, said: "Mortgage rates are now changing on a daily basis and lenders are giving borrowers and brokers little notice about repricing.
"We’re seeing two significant impacts on borrowers. Firstly, some homeowners who are nearing the end of their terms are facing a shock when they come to refinance, because they are unable to borrow as much as they hoped.
"Secondly, those who are looking to buy are realising once obtainable properties are now out of reach. The question for them is now not ‘how much can I borrow?’ but ‘how much can I afford to borrow?’. This is a subtle but very important shift in borrower behaviour that is driving people to re-evaluate the price at which they can buy."
Mortgage affordability pressure will hit Londoners even harder as analysis revealed more than half a million homeowners in London and the South East face a “mortgage ticking time bomb”.
More than one in four of the 2.1 million mortgage holders in the region have fixed-rate mortgages which are due to expire in the next two years or sooner. Today’s base rate rise means the typical tracker mortgage will rise by £156 per month, equivalent to £1,872 a year, according to figures compiled by the Liberal Democrats.
The figures were calculated using a typical fixed average mortgage balance of more than £160,000 outstanding but experts say mortgages in the capital are significantly higher, meaning thousands of Londoners will face an even bigger leap in payments when their fixed-rate deals expire.
This is amid an ongoing cost of living squeeze when energy bills and general inflation are also on the up.
James Forrester, managing director of Barrows and Forrester, said: “The situation for homeowners is pretty desperate right now and rising inflation has already pushed many households to breaking point, as they’ve battled to manage the increased cost of living.
“Unfortunately things look set to get quite a bit worse before they get any better, with inflation predicted to hit 15% by spring next year.
“As a result, the cost of homeownership will become even less affordable, pushing it further out of reach for those already struggling with the financial hurdles of buying and owning a home.”
Interest rates have been rising from a historic low level as the Bank seeks to combat inflation with the base rate now set at 1.75 per cent, the highest it has been in 13 years.
Today’s increase was the first half point interest rate rise since 1995.
Homeowners were warned last month that interest rates may rise to 2 per cent or higher in the next year in a speech by outgoing Monetary Policy Committee member Michael Saunders, who is set to leave after today’s rates decision.
