Mortgages

Mortgage affordability unchanged from 20 years ago

The average cost of repaying a mortgage – as a proportion of monthly income – is now more affordable than it was 10 years ago.

Rozi Jones
|
22nd February 2019
mortgage house first time buyer first-time complete
"Thanks to falling rates, those with a mortgage today are in a similar – if not better – position than their predecessors"

Falling mortgage rates and wage growth mean the cost of servicing a mortgage has remained stable for decades despite growing loan sizes, according to research from mortgage broker Private Finance.

In fact, the average cost of repaying a mortgage – as a proportion of monthly income – is now more affordable than it was 10 years ago despite house prices rising 29% over the same period.

In 2008, the average borrower could expect their mortgage to account for 43% of their monthly income (if purchasing alone), compared to 31% of monthly income in 2018.

In terms of actual payments, the average borrower is now saving £104 a month, with monthly repayments down from £804 to £700, despite the average house price growing by £51,660 over the same period.

Over a 20-year period, the affordability of mortgages has remained broadly unchanged. In 1998, the average homeowner could expect to spend 30% of their monthly income on mortgage payments; 20 years later, this proportion is almost unchanged at 31%.

This is despite the average UK house price soaring by 225% over the same period, up from £70,313 in 1998 to £228,513 in 2018. House prices now represent 8.5 times annual income, compared to 4.7 times 20 years ago. As a result, the typical loan – based on a 75% LTV mortgage – has more than tripled from £52,735 to £171,384.

However, Private Finance’s analysis shows once buyers have made the upfront purchase for their home, the ongoing cost of ownership is broadly in line with levels seen in 1998.

Bank of England data reveals that in 1998, the average two-year fixed rate at 75% LTV was 7.01%, compared to just 1.68% in 2018.

Wage growth also has a role to play; while monthly mortgage repayments have increased by 88% from £373 in 1998 to £700 in 2018 – this increase has been offset by the rise in average earnings. Over the same period, average monthly earnings have increased by 78% from £1,261 to £2,249.

Shaun Church, director at Private Finance, commented: “News of the UK property market’s affordability crisis is never far from the headlines. What we often fail to acknowledge, however, is that thanks to falling rates, those with a mortgage today are in a similar – if not better – position than their predecessors, who owned property at a time when housing was considered vastly less expensive.

“With the value of property skyrocketing over the past 20 years, it’s undeniable that first-time buyers today face a far greater challenge stepping onto the housing ladder. However, once buyers have raised their deposit, the ongoing cost of owning a home is less of a financial strain than that faced by buyers a decade earlier, and broadly in line with affordability levels seen 20 years ago when property values were much lower."

Related articles
More from Mortgages
Subscribe
to our newsletter

Join a community of over 30,000 intermediaries and keep up-to-date with industry news and upcoming events via our newsletter.