Recent research reveals a significant challenge for homeowners in the face of today’s mortgage rates. A study conducted by data science firm Outra indicates a substantial increase in the number of households unable to afford their current homes due to housing affordability issues.
Rising Affordability Concerns
The study notes a striking rise of almost two-thirds in the proportion of households unable to purchase their homes under existing housing affordability levels. In comparison to the previous year, the number of homeowners capable of buying their current homes has dwindled significantly, with less than a million homeowners fitting this category under the current interest rate circumstances.
Outra’s comprehensive analysis encompassed over 30 million households across the UK, focusing on England and Wales. The study found that merely 0.9% of working-age homeowners in these regions have the financial capacity to reacquire or upgrade their current residences.
An additional 5.9% could potentially afford their homes, but only if offered more favorable mortgage terms or if assisted through shared ownership programs. This marks a substantial decline from the 22.3% reported in December 2022.
The study also highlights demographic disparities among those unable to afford their homes under the current market conditions. Of those in this situation, 24% fall within the 20-30 age group, while 22% are aged between 50 and 60. The study’s parameters assumed a 5% mortgage and a 10% deposit for home purchase.
Factors at Play
Peter Jackson, a representative from Outra, attributes the growing inability to afford homes to multiple factors. While rising interest rates are a contributing factor, Jackson notes that decreasing house prices are also impacting the accumulated equity in properties. He emphasizes that the interplay between these two factors is crucial.
As of the latest update, the average two-year fixed residential mortgage rate stands at 6.74%, while the average five-year fixed mortgage rate rests at 6.21%, according to financial analysts at Moneyfacts. This comes in the wake of 14 increments in the Bank Rate by the Bank of England, which has moved the rate from 0.25% to 5.25% since December 2021.
The concerning figures come shortly after the UK’s largest lender, Halifax, revealed the staggering proportion of income homeowners in London and the South East are dedicating to mortgage payments. Londoners are particularly affected due to elevated house prices, with mortgage repayments consuming nearly half of their income.
Addressing the Issue
In response to these challenges, Jeremy Hunt introduced a mortgage rescue charter in June, aiming to facilitate mortgage term extensions and reduced monthly payments. This charter offers borrowers the flexibility to switch back to their original terms within six months.
Long-Term Mortgage Trends
In light of these affordability struggles, an increasing number of individuals are resorting to longer mortgage terms to alleviate monthly payment burdens. Recent data from the financial regulator reveals a notable rise in the uptake of mortgages with terms between 30 and 35 years.
As homeowners grapple with the realities of current mortgage rates and housing costs, the dynamics of the market continue to shift. The data underscores the pressing need for innovative solutions and policy interventions to ensure sustainable homeownership for a diverse range of households.