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Average house in England is now 8.4 times income

The average cost of a home in England is becoming unsustainable/ Photo by RDNE Stock project via Pexels
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The average house price in England is becoming unsustainable. Overstretched buyers will face “rate hell” says personal finance expert as ONS says housing in England has not been affordable since 2017. Is there any good news on the horizon for those in the market for a new mortgage?

As mortgage rates continue to rise, analysis of Google search data reveals that searches in the United Kingdom are skyrocketing regarding the mortgage crisis, with terms such as ‘Mortgage help’ exploding by 1,366% in recent weeks.

“Brits seemingly feel lost and want support amid the mortgage chaos,” says mortgage broker L&C Mortgages.

In London, the average property is 13.9 times the average income. In the South East, it’s 9.8 times, in the East of England 9.3 and in the South West 8.9 times, according to new figures from the ONS.

In 2022, in England, the average house price was £275,000 and the average annual disposable household income was £33,000 – so that means houses cost 8.4 times income.

UK fixed-rate mortgage costs have now soared to a new seven-month high, adding more pressure on household finances. According to Moneyfacts reports, the average two-year fixed residential mortgage has risen to 6.66%, up from 6.63% in recent weeks, the highest level since the 2008 financial crisis.

Figures released by the Bank of England show that almost a million borrowers can expect their mortgage payments to increase by up to £500 a month by 2026, the equivalent of almost a week’s worth of pay for the average employee.

Google Trends data shows Brits are searching for the term ‘How to pay mortgage’ has increased by 186% in the past 30 days.

The financial pressure has also had a huge impact on renters, as they see their payments rise as buy-to-let landlords pass on the effect of higher mortgage repayments. Brits have noticed the increasing rent costs as Google searches for ‘rent increase’ over the past five years in the UK have soared by 235%.

However, mortgage lenders may continue to cut rates in the coming weeks, it has been reported.

“Economists suggest the Bank of England will raise the base rate to 5.25 per cent on Thursday, however, they believe that lenders will have already factored in the rise for fixed-rate mortgages,said a GB News report.

“Some experts predict the 14th consecutive rise could be the last following a larger than expected fall in the June inflation figure,” said the report.

Freelancers will have to look for ways to earn more or spend less

Freelancers looking to buy a new home or remortgage will have to seriously rethink how they run their business to make up for the hike in mortgage interest rates. Even if they set a two-year fixed mortgage, those two years could make things tight. If you have not put your rates up in the past two years, that should be the first thing you do and put it in line with inflation at the very least. However, if you are a freelancer you should be able to dictate your rates within reason. You can even calculate your own personal inflation rate to see just how your rates may need to go up.

The cause for concern over mortgage affordability was highlighted by Sarah Coles head of personal finance, Hargreaves Lansdown. The ONS affordability threshold is five times earnings – and we have been above this since 2017, the expert says.

In England, only the top 10% of households can afford an average home with fewer than five years of income – it’s the top 30% in Wales and the top 40% in Scotland and Northern Ireland.

“Runaway house prices made a mockery of housing affordability in 2022, with buyers in England stretched to breaking point to buy an average house worth more than eight times their income – and almost 14 times in London,” says Coles.

Continuing, she says, “While mortgage rates were low, this kind of financial contortion was feasible, but now people are facing remortgaging at much higher rates, it’s going to be incredibly painful.”

Housing hasn’t been affordable since 2017, according to the ONS, and rampant price rises during the pandemic didn’t help. Lower mortgage rates helped people to stretch their finances to bigger loans.

“However, with 1.4 million people remortgaging at a much higher rate this year, it’s going to bring real pain to hundreds of thousands of people,” says Coles.

When a household spends 25% of its after-tax income on the mortgage, it’s considered to be at risk of falling behind on payments. The HL Savings & Resilience Barometer shows that, over the next year, 26% of people will be in this position.

Meanwhile, 230,000 of those who are ‘at risk’ of falling into arrears have cash savings that cover less than three months of essential spending – making them ‘high risk’. Plus, an additional 470,000 also have unsustainable spending, so they’re at ‘critical risk’.

Tips for prospective home buyers

Coles suggests for anyone planning to buy a property in the future, your best protection is to build as big a deposit as you can manage.

“It’s worth getting all the help you can from wherever it’s available – whether that’s from the Bank of Mum and Dad, or by saving into a Lifetime ISA and getting a 25% bonus of up to £1,000 a year from the government,” she says.

“Nothing will make buying a property easy while affordability is so stretched, but the less you have to borrow to get you there, the less vulnerable you will be at a time like this,” says Coles.

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