Many people who have recently climbed onto that property ladder have been enjoying extremely affordable mortgage repayments compared to years gone by. Although this has helped many get their feet on the ladder, and eased them into the mortgage market, when interest rates rise, it could come as a shock.
Halifax has compared the current cost of mortgages to five years ago and have found that they have become more affordable everywhere, except in London and the South East.
The average annual cost of mortgage payments has fallen by £96 in the UK since 2009, something that is likely to be down to the combined impact of lower mortgage rates, increased average earnings and house price changes, creating some of the most favourable market conditions for mortgages in years.
This figure is highly skewed by London payments and, as always, there are vast regional differences. For those taking out a new mortgage in London, payments will mean finding another £1,992 per year compared to five years ago.
Conversely, for those living in Northern Ireland - the area which has seen the largest reductions – they will be paying, on average, £2,880 per year less than five years ago. New Scottish mortgage holders will also have £980 extra in their pockets at the end of the year, while those in the North are paying £780 less.
The South East is the only part of the UK, outside of London, where new mortgage payments are more expensive than they were five years ago, an extra £612 on average.
As wages are showing a steady increase, new mortgage payments are happily taking up less of consumers' household incomes. They now account for 28% of earnings, a drop of 2.7% from 2009, and a huge reduction from the high point of the market in 2007, when a staggering 48% of income was spent on mortgages.
Craig McKinlay, mortgage director at Halifax , said:
"In the majority of regions, mortgages are substantially more affordable today than they have been in years.
"The reality is mortgage affordability outside of London and the South East is close to its best level for 12 years. In London however, affordability is worse than it was in 2009, as the capital has shown exceptional house price growth."
However, with an interest rate rise on the cards, new buyers need to be aware that their payments are likely to start increasing, and in fact some lenders have already begun raising rates. Affordability is the key and this is why the Government brought in new rules following the Mortgage Market Review – to ensure that should payments go up, you will be able to afford them. You can also do your own calculations to ensure that you budget for any mortgage you take out, and remember, the larger the deposit you can save, the better deal you should be able to secure.
It seems that buyers are still taking up those mortgages with new buyer registrations happily increasing by 29% annually, in spite of mortgage market tightening. This buyer demand is, in turn, still bolstering house prices due to it being over six times the rate of housing supply, with new housing builds up just 5%.
As David Plumtree, chief executive at Sequence, adds: "Going forward, a reduction of buyer demand and stabilisation of house price growth is unlikely to happen until later this year. There are now close to seven buyers chasing every new instruction and it is this competition which is keeping prices high and sales transactions rising, up 17% annually.
"[However], when mortgage products become less attractive and interest rates eventually rise, we may see an impact on house prices as buyers, especially first-time buyers, begin to struggle keeping up with rising costs of buying a home."
So, even though affordability has been improving, it may not stay that way if rates start to creep up. If you have saved up that deposit perhaps now is the time to get on the ladder before rates rise, and if you choose a fixed rate deal you can enjoy peace of mind that your repayments will remain the same.
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