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Graham Awards


High mortgage costs and deposits set to keep rental demand high

New data produced this morning by the Nationwide suggests prospective first time buyers are having a tough time - and many are likely to have to remain renting.

The lender says the biggest change in terms of housing affordability for potential buyers over the past year has been the rise in the cost of servicing the typical mortgage as a result of interest rate rises.

The building society says this actually began in late 2021 with typical five-year fixed rates starting to rise, reflecting expectations that the Bank of England would have to hike rates significantly in the years ahead to help bring inflation back to its target two per cent.


Nationwide’s senior economist Andrew Harvey says: “Mortgage rates surged after the mini-Budget in late September [2022] reaching their highest levels since 2010, over four times higher than the lows prevailing in 2021. While wider financial market conditions had stabilised by the end of 2022, with market interest rates falling back towards the levels prevailing before the mini-Budget, mortgage rates are taking longer to normalise.”

He says that the typical potential first time buyer - with an 80 per cent loan-to-value mortgage - would now have to spend 39 per cent of take-home (net) pay on mortgage servicing, which close to the levels seen in the run up to the 2008 financial crisis.

In addition, Harvey warns that raising a deposit is another major hurdle for prospective buyers. 

“In recent quarters, strong wage growth and a small fall in house prices has led to a modest fall in the house price to earnings ratio. But this has done little to improve the situation, as it follows several years when house price growth outpaced earnings by a wide margin.

“For example, between the start of the pandemic and the end of 2022, house prices increased by 19 per cent, while incomes rose by a much more modest nine per cent. At the end of 2022, the UK first time buyer house price to earnings ratio stood at 5.6, the same level as at the end of 2021.

“This in turn means that a 20 per cent deposit on a typical first time buyer home is now equivalent to 112 per cent of the pre-tax income of a typical full-time employee, a similar level to a year ago, and only modestly below the all-time high of 117 per cent recorded earlier in 2022.”

Harvey suggests that there may be some scope for affordability to improve a little in the year ahead. 

Longer-term interest rates, which underpin mortgage pricing, have fallen back towards the levels prevailing before the mini-Budget, and he suggests that if this is complemented by personal income growth (currently running at about seven per cent in the private sector) the position would be less bleak. 

“Nevertheless, the overall affordability situation looks set to remain challenging in the near term. Saving for a deposit will still be a struggle for many. The cost of living is set to outpace earnings growth by a significant margin again this year, while labour market conditions are widely expected to weaken. Moreover, rents have also been rising at their strongest pace on record which will be a further drag for those currently renting who are looking to buy a home - especially since they also tend to spend a larger share of their income on housing costs than owners with a mortgage” concludes Harvey. 

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    And all the government can do is target us and ensure we sell up… meaning less properties and higher rents 😂 it would be laughable if not so tragic.


    Simon. It must be all part of a bigger plan? It's so stupid what they're doing that there must be a reason known to themselves? I can't get my head around it....and these morons are running the country!!

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    Why is Nationwide telling us this, haven’t lender’s tightened their criteria as well.
    Why do they think Tenants can afford existing rents not alone higher rents caused directly by Government, Shelter and other lame duck organisations and with jobs going all over the place and strikes everywhere. The Government needs wake up and scrap the proposed legislation and Licensing Schemes adding insult to injury.


    Because it’s never the lenders fault!

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    Cheap money's gone never to return, interest rates are getting back to where they should be


    Totally agree, but there are young people out there who have known nothing but cheap money, they are in for a sharp introduction to the real world.


    I agree but do not 'like'.


    I think the rates below 1% may never return but already there is talk that once inflation rates are under control they will drop rates.
    We need a new plan, not with quick fixes but stability. Unfortunately, the banks just want to make profits at low risk to them.


    I agree Simon, when my son first left home he moaned about costs, he didn't like my reply, ''welcome to the real world''.



    You really should have waited until he had turned 5 before putting him out the house!


    Well Robert at 5 my son was helping me with the ground works of my house to earn his pocket money, he continued to help me renovating my investment properties up to 15, by which time he had become very useful, teaching them the value of work to earn their money is the best education of all .


    Totally agree Andrew.

    My kids were tunnelling under floors pulling electric cables and flexible piping into place when about 5.

    Later they effectively funded themselves through University. Although we provided the 10% deposits for their student flats, they paid the mortgages and got their living expenses from renting rooms to flatmates, who were gobsmacked by their DIY skills, fixing most things that went wrong themselves.

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    When there are less first time buyers then its usually investors who keep the housing market going. Would not wish to be starting out now.

  • George Dawes

    Eventually it all be rented by the government , then they'll have the renters by the short and curlies

    Not taken your medication ? Out on the streets

    Poor social credit score ? Out on the streets

    Posted something on social media that's anti-govt ? Out on the streets

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    Interest rates are still low. Not that I want them to increase, but historically it is still low. First time buyers need to plan for fluctuating interest rates, it has always been this way.
    Government need to stop interfering with the market. Their policies have affected the market in so many ways and some poor home owners are going to be feeling the effects soon enough.
    Market forces, if left alone will prevail.


    But only if left alone. No government can resist the temptation to try to influence things without taking unintended consequences in to account.


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