Based on research among 1,500 Britons looking to buy a home, Experian has found that homebuyers have their sights set on a property worth an average of £235,000. With a combined household income of £50,674, the average homebuyers claim they can afford an average mortgage payment of £780 a month. However, based on a 10% deposit, repayments on a £235,000 property would actually be nearer to £1,300 a month, and potentially more, depending on their credit history and the lenders policy rules.
The situation becomes even more problematic if, as is widely reported, the Bank of England moves to increase base interest rates in 2015. Although people may be able to afford such a property at present, even modest interest rate rises could make meeting their monthly repayments difficult and leave little available cash at the end of the month for unforeseen living costs.
Mortgage payments could soar to £1,440, almost double what the average homebuyer claims they can afford, should variable rates convert to 5.5% at the end of a typical two-year fixed deal – a 1.5 point rise on current rates.
A further cause for concern is that 35% of buyers admit that they would find it hard to make ends meet if their mortgage became more expensive than what they had budgeted for.
In the case of first-time buyers, they are targeting a home worth £193,000 and could see their mortgage payments soar to £1,060 on the same two-year deal – 60% more than what the typical first-time buyer can afford.
Jonathan Westley, Managing Director of Experian Consumer Information Services for UK and Ireland, commented:
“This research highlights the gap in homebuyers’ awareness of long term affordability and the possible impact of an interest rate rise, especially as consumers are underestimating their mortgage repayments by as much as £500. It also highlights how much of a role the Mortgage Market Review will play. The onus will be on lenders to ensure they are able to accurately and fairly assess what a person can reasonably afford throughout the lifecycle of a mortgage.”
