The average household that took out a mortgage in 2021 faces a 3% reduction this year in the amount of disposable income it has left over after home loan, credit commitments and living costs, according to trade association UK Finance. The cost-of-living squeeze will be felt particularly acutely in lower-income brackets, which have around half the spare income of those in higher brackets, even before cost-of-living pressures are factored in, it added.
It found most borrowers across all income brackets would still qualify for the same sized mortgage now as they did last year. However, there will be some borrowers who would not qualify for the size of loan granted last year due to the new additional costs, which may result in a softening of demand for mortgages this year, UK Finance said.
While mortgage activity is expected to be strong through this year, this will largely be driven by customers coming to the end of their fixed-rate deals and looking to switch to a new rate, it added. This contrasts with previous years, when a significant element of re-mortgaging activity involved borrowing substantial sums of additional money, in many cases to fund further property purchases.
