UK first-time home-buyers’ mortgage costs highest since 2008: Nationwide

A person walks with a dog in front of a row of residential housing in south London, Britain, August 6, 2021. Photographer Henry Nicholls

By Reuters

Mortgage costs for first-time home-buyers in Britain have risen to their highest since 2008, reflecting a surge in interest rates over the past year, Nationwide Building Society said on Friday.

The average monthly mortgage payment for a new first-time buyer in the final quarter of 2022 was equivalent to 39% of a single full-time salary after tax, up from 34% the quarter before and the highest since mid 2008.

Mortgage costs have risen for first-time buyers despite what Nationwide estimates is a 2.5% fall in house prices between August and December, as well as private-sector wage growth that is running at an annual rate of 7%.

The Bank of England started to raise interest rates in December 2021 – when they were just 0.1% – and they reached 3.5% last month, the fastest tightening in decades.

Financial market turmoil caused by Liz Truss’s September mini-budget had exacerbated the rise in mortgage rates, Nationwide said.

“While wider financial market conditions had stabilised by the end of 2022, with market interest rates falling back towards the levels prevailing before the mini-budget, mortgage rates are taking longer to normalise,” Nationwide economist Andrew Harvey said.

Rents are also rising at their fastest pace since Nationwide’s records began in 2005, adding to an inflationary backdrop that makes it harder for people to save up to get on the housing ladder.

“The overall affordability situation looks set to remain challenging in the near term,” Harvey said.

Japanese bank Nomura forecast on Thursday that British house prices would fall 15% by mid 2024, after rising more than a quarter since the start of the COVID-19 pandemic.

Housing costs vary widely across Britain. While first-time buyers’ mortgage payments in northern England and Scotland cost just 24% of a local full-time worker’s after-tax salary, a Londoner would pay 67% of salary.

House price to earnings ratios are down slightly from a year ago, reflecting falling house prices and faster wage growth.

London house prices in 2022 were 9.2 times the average local salary, below a record peak of 10.2 in 2016, while Scotland and northern England have the cheapest housing at 3.4 times earnings.