The monthly cost of buying the smallest homes in London has soared by £363 in the last year, according to new figures.
Rightmove research found a typical mortagage repayment on a property in the capital with two bedrooms or fewer was £2,340 in April.
This is up from £1,977 a year ago — despite the average asking price on these homes, which the listing portal classifies as being targeted by first-time buyers — actually falling slightly in that time.
After a series of interest rate hikes, the extra cost of borrowing equates to £4,356 per year — and could require buyers to generate around an extra £6,000 annual income once tax and other contributions are accounted for.
This is a different way of assessing housing costs, which are rising with interest rates, as opposed to house prices, which have been falling slightly.
The data shows just how far affordability is now stretched, with average pay rising by just three per cent in the same period, according to latest official statistics.
‘Adverse’ lending environment
Rightmove mortgage expert Matt Smith said the tougher lending climate contributed to “a challenge for first-time buyers”.
“Would-be buyers planning a move may need to assess their individual circumstances and weigh up their affordability based on current rates with the potential cost of waiting or paying rent for longer,” he added.
Tom Bill, head of UK residential research at estate agents Knight Frank, described the lending environment as “far more adverse” than a year ago.
“Budgets are becoming stretched as a 14-year period of ultra-low rates comes to an end,” he said. “Mortgage rates will largely hold steady this year and any movement up or down is likely to be minimal.”
Mr Bill said affordability would drive a significant amount of activity in the London housing market over the foreseeable future.
“Some will decide to leave London and find better value in regional towns and cities or overlooked parts of the widening commuter belt in south-east England,” he explained.
“Inside the capital itself, more affordable postcodes, including in the east and south-east, are likely to see stronger price growth as demand picks up.”
Elsewhere Rightmove calculated that the average monthly cost of buying a three or four-bed property in London had increased by £645 in the past year. Those purchasing even larger homes faced finding an extra £1,052 per month.
The figures are based on the listings portal’s vast database of asking prices alongside mortgage data provided by a third party specialist assuming a five-year fixed home loan for 85 per cent of a property value to be repaid over 25 years.
Separate data from housing service sourcer Reallymoving showed a 16 per cent hike in the prices actually paid by first-time buyers in London over the past five years. From a typical handshake on £399,000 in 2018, people were agreeing to shell out £463,000 on average to get the keys to their first pad at the start of 2023.
However, this rise is lower than it has been across the UK as a whole, where first-time buyers have seen costs rise by almost a third in five years.
‘A long way to go to fix the housing crisis in London’
Reallymoving chief executive Rob Houghton said: “The significant increase in the price of a first home, and the much slower increase in wages over the last five years, lays out in black and white the scale of the challenge for first-time buyers.
“Trying to time the market can be difficult and if prices do fall, lenders become nervous, usually leading to higher mortgage rates which make it harder to find a loan you can afford.”
Houghton advised those considering a move on to the ladder: “The best time to buy is when you personally are ready and able – and plan to stay there for at least three years if you can, to ride out any short-term fluctuations.”
A spokesperson for the Mayor said: “Hard-pressed home owners in London are being hit with higher mortgage rates due to the lasting legacy of the Government’s disastrous mini Budget. The Mayor continues to call on the Government to introduce measures to support struggling Londoners, including mortgage payment holidays. He is also calling on Ministers to give him the power to freeze rents in London.
“The Mayor is focused on building more affordable homes for Londoners in every part of our city. We have started building more new homes than any time since the 1930s and the Mayor has hit his council homebuilding target, with more than 20,000 new council homes started since 2018.
“There’s still a long way to go to fix the housing crisis in London, which has become a much harder job due to the economic chaos caused by the Government. But thanks to the action the Mayor is taking, we are starting to turn the tanker around.”
