Increasing mortgage costs swallow 27.9% of household income - up 3.1% since last rates hike

The latest research by property purchasing specialist, House Buyer Bureau, has revealed that increasing mortgage rates are now likely to see the average annual cost of a mortgage repayment consume 27.9% of our household income, a 3.1% increase as a result of the latest increase to interest rates.

House Buyer Bureau analysed the current cost of repaying a mortgage, the proportion of household income required to cover this cost and how this is expected to change now the Bank of England have increased interest rates to three per cent. 

The research shows that prior to the last 0.75% hike to the base rate, the average homebuyer purchasing via a variable rate mortgage was repaying £1,399 per month, a total repayment of £16,790 per year based on an average mortgage rate of 5.10%. 

With the average household income currently sitting at £67,784, this means that the average household is currently paying 24.8% of their annual income to cover the cost of their mortgage. 

However, with the base rate now increasing to 3%, the average mortgage rate available to those purchasing with a variable rate mortgage is forecast to climb to an average of 6.34%, pushing the annual cost of their mortgage repayments to £18,917 per year.

As a result, they will now be required to spend 27.9% of their annual earnings on covering the cost of their mortgage - a 3.1% increase in the proportion of income required. 

At a county level, it’s those in Devon and Greater London who are set to see the biggest increase, with the proportion of household earnings required to cover their mortgage repayments increasing by 4.2%. At 37.5% and 37.4% respectively, these two counties are also forecast to be home to the highest proportion of income required to cover the cost of borrowing. 

Other counties where homebuyers face the biggest strain on their household income as a result of increasing mortgage costs include Bath and North East Somerset (+41.5), West Sussex (+4.1%), Oxfordshire (4.1%), Dorset (4.1%), Surrey (+4%), Cornwall (+3.9%), East Sussex (+3.9%) and Hertfordshire (+3.9%). 

Managing Director of House Buyer Bureau, Chris Hodgkinson, commented:

“A 3.1% increase in the proportion of household income required to cover the cost of repaying a mortgage may not seem like much, but for the average home it equates to a jump of over £2,000 per year and at a time when we’re already stretched to breaking point with the increased cost of living. 

For many homebuyers, this increased cost is likely to be one hurdle too many when it comes to realising their dreams of homeownership and this will inevitably have an impact on the property market and house prices. 

With buyers no longer able to stomach the cost of borrowing, sellers will have little choice but to adjust their asking price or spend months on end with little to no interest in their home. 

Either way, we can expect the huge rates of house price growth seen in recent years to continue to fade over the coming months as the market adjusts to the new reality we have been presented with due to soaring interest rates.”