Property website Rightmove has calculated that yesterday’s interest rate rise – up 0.5% to 1.75% - will mean new first-time buyers witnessing their monthly mortgage payments increasing to an average of 40% of their gross salary. This is a level not seen since 2012, the portal said.
As a result of the interest rate hike – the biggest single rise since 1995 - the average monthly mortgage payment for new first-time buyers will increase to more than £1,000, Rightmove claimed.
The impact of this year’s interest rate rises has already been felt by new first-time buyers. The average monthly mortgage payments for this demographic are currently £976 per month, up from £813 per month in January, a 20% rise.
Based on the latest data, Rightmove believes the rate rise of 50 basis points will see the average monthly mortgage payment for new first-time buyers grow to £1,030.
The website says average first-time buyer monthly mortgage payments currently account for 38% of an average gross salary based on the latest data. However, the 0.5% rise takes it to 40%, the highest level for a decade.
The impact on affordability is starkly shown when looking at deposits. A 10% deposit on an average first-time buyer type home now stands at £22,494, 57% higher than ten years ago (£14,316). What’s more, the average asking price of a first-time buyer home is at a record of £224,943.
The latest data shows average gross monthly salaries have increased by 31% in the last decade, not close to keeping up with house price and deposit growth.
According to Rightmove, the current average mortgage rate for a two-year fix is just over 3% compared to just under 6% ten years ago.
It also found that, despite the affordability challenges, demand for first-time buyer type properties is up 35% compared with 2019.
“Today's 0.5% increase in the base rate takes average monthly mortgage payments for new first time-buyers to over £1000 if lenders pass on the rate rise to new applicants. This is approximately 40% of the average first-time buyer salary, a level not seen since 2012,” Rightmove’s Tim Bannister said.
“First-time buyers trying to get onto the ladder are currently facing average monthly mortgage payments that are 20% higher than the start of the year due to rising interest rates and asking prices, and that’s assuming they’ve been able to raise a large enough deposit. A new record first-time buyer asking price of £224,943 means that a 10% deposit for a first-time buyer type home is now 57% higher than it was ten years ago, while average salaries have only increased by 31%.”
He added: “For all home-owners, average mortgage rates for a two-year fix are just over 3% compared to nearly 6% ten years ago, so they are still historically low, and those currently on a fixed-rate will not be impacted yet. However, as rates creep upwards and with the wider economy uncertain, people may look for some financial certainty by locking in longer mortgage terms before they rise again.”