The average monthly mortgage payment for a household buying a first-time buyer home would increase to £1,302 if the average mortgage rate rose to 6% (for a 90% LTV two-year fix), according to Rightmove.
The property website has made some predictions on affordability if mortgage rates were to increase to 6%. The portal says this is based on the current UK average salary – therefore, it does not factor in further wage inflation and is based on people having a 10% deposit.
The above monthly payment would be 60% higher than for those getting on the ladder at the start of 2022. What’s more, the monthly payment for two people buying a first home together and splitting the £1,302 payment (£651 each) would equate to a quarter of their gross average salary, a 10% increase from 15% at the start of the year.
We have to look back to May 2012 for the last time the average mortgage rate was 6% on a 90% LTV 2 year fix, when the average asking price of a first-time buyer home was only £142,686.
A decade ago, the average monthly mortgage payment on a first-time buyer home was £833, 21% of the average gross salary for two people splitting the payments.
Rightmove also found that, for a solo first-time buyer, the situation becomes even more complicated. Based on the average lending criteria of 4.5 x their salary, solo- first-time buyers would need to be earning £45,000 to purchase a home at the current average first-time buyer price of £224,479.
If rates were to rise to 6%, this would equate to 35% of their salary, up from 22% at the start of the year.
Currently, a 10% deposit on an average priced first-time buyer home stands at £22,448.
Despite the above, the cost-of-living crisis and the affordability challenges faced by many, demand for first-time buyer homes remains up 27% on the pre-pandemic five-year average.
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