Stretched affordability – Calculating the ever-increasing costs of homeownership

It’s no secret that house prices have risen over the past year. Take the South East of England for example, a region which includes coastal cities, and towns within touching distance of the UK’s capital.

Average house prices for first-time buyers in this area sat at just over £327,000 throughout 2021, according to Halifax, the UK’s largest mortgage lender. In the following year the typical home in this area added more than £35,000 to its value, a figure which exceeds the nation’s average annual income.  

This region, which includes cities like Brighton & Hove and Oxford, is not alone in seeing price rises.

Another example is Northern Ireland, which is one of the cheapest areas within the UK to buy a home. But this country has also seen significant gains over the past year, with properties increasing in value by 8% for first-time buyers.

This is more than Wales, which registered a 6% increase to its average home, but slightly less than Scotland, where homes saw a 9% boost.

Overall, the price for the average UK property increased by 13% for first-time buyers.

These statistics will likely be of interest to those looking to time their move onto the property ladder, especially if there is a fall in house prices this year.

However, house prices aren’t the only concern potential buyers will need to consider.

On the day of former Prime Minister Liz Truss’s resignation last October, the average two and five year fixed rates peaked for 2022. So, while rates have been reducing since then, it has been off an historically high base.

It’s a similar tale for fixed mortgage rates which require a minimum deposit of 5% or 10%, the type often favoured by first-time buyers.

According to Moneyfacts data and calculations, if someone were to lock into the current average two year fixed deal at a 95% loan-to-value their monthly repayments would cost over £1,300 a month.

In comparison, the same deal in January 2022 would have cost nearly £350 less per month but over £16 more per month than taking out this deal on 1 December 2022.

Still, the average monthly repayments for such a deal represents a large portion of the average earner’s income.

Halifax suggests that the average first-time buyer is 32 years old, with the Office for National Statistics (ONS) stating the average annual earnings for this age at £35,256 . The current average two year fixed rate deal would cost £15,655 a year, which is over 44% of the typical yearly earnings.

Naturally, those who can afford a greater deposit will find slightly more breathing space. The average two year fixed deal which requires a minimum deposit of 10% is priced at 5.89% for this month.   

Using the above criteria, this makes the monthly repayments approximately £1,275, or £15,300 a year. This equates to just over 43% of a typical £35,256 salary.    

Before working out the affordability constraints of monthly mortgage payments, first time buyers will need to consider their deposit.

Research collated between the ONS, UK Finance, and Halifax have priced the average first time buyer deposit at over £62,000, an amount which equates to 21% of the average UK property price.

Saving for such a figure could be challenging for some aspiring first-time buyers. The ONS suggests that those between 22 and 29 years of age earn an average annual salary of £28,392, which is less than half of the average deposit. 

This age group is the closest to approaching the average first-time buyer age of 32, but some will need to wait longer than others until they have saved sufficiently.

Those working or moving to London on average pay just north of £125,000 as a deposit for their home, according to Halifax. This makes up 24% of the typical London dwelling.  

Meanwhile, those living in the North East of England, a region which encompasses cities like Newcastle and Sunderland, typically save just more than £30,000 for their homes. In contrast this equates to around 17% of their home’s value.

Of course, the typical earnings across these regions will differ, which puts these prices into perspective. However, what is clear is that saving for a deposit and affording monthly mortgage payments can be easier with a helping hand.

One way to potentially make homeownership easier is to make a joint application. This can be with a partner, friend or a family member who is willing to ease the financial burden of homeownership.

According to Halifax, more mortgage completions were made in joint-names rather than sole purchases last year. In fact almost two-thirds of the mortgage applications the lender oversees are in joint-names.

To explore the different possibilities you can take towards home ownership, speak to a mortgage broker. Our preferred mortgage brokers are Mortgage Advice Bureau, and you can book an appointment with them by clicking here.