Mortgage Rates Improve Whilst Affordability Gap Increases

The housing sector has been kind to those lucky enough to gain a foothold on the property ladder over the past decade.

Similarly, first-time buyers acquiring property for the first time in 2019 are benefiting from falling mortgage rates.

Since 2008, the average UK property price has increased by 43% whilst the average UK income has only risen by 15%, according to Private Finance.

Between 2008 and 2018, UK property prices increased from £160,954 to £229,861. Unfortunately for prospective buyers, during this time, the average wage grew to £28,860 from £24,606.

The disparity between property prices and wages created a clear and increasing affordability gap preventing many from accessing a property of their own. Over the past ten years the average home increased from 6.5 times the average wage to 7.9, making mortgage affordability a lot more difficult.

However, those able to finance a house move and gain a mortgage have enjoyed favourable rates in the past two years with two-year fixed rate mortgages at 75% loan-to-value (LTV) falling from 4.77% in 2008 to 1.73%.

This means, despite the 43% increase in property prices during the decade, a modern equivalent mortgage will only cost homeowners an additional £18 per month compared with 2008 rates.

Simon Checkley, Managing Director at Private Finance, commented:

“Property first and foremost provides a roof over your head and a place to call home; however, over the long term it can act as a lucrative investment. With falling mortgage rates making the cost of owning a home even more affordable, homeowners’ potential return on investment could be set to become even greater.

“Many homeowners will undoubtedly take comfort in the fact that over the past 10 years, as they’ve worked hard to earn an income, their home has essentially been doing the same – and arguably even more successfully. Though house price growth has slowed in recent years, it remains buoyant in many areas of the country, and has historically remained strong over the long-term.

“This money needn’t remain locked away in our homes. For homeowners looking to stay put, or move to a more manageable house, downsizing and remortgaging are both options that can enable individuals to release some of the money earnt by their home to help them with their wider financial goals.”

Once buyers are able to save for a deposit and acquire a mortgage, mortgage options seem to be a lot more appealing in the modern property sector. How can things improve to help narrow the gap between property prices and the average wage to help more people get on the ladder?

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