Housing is now at its least affordable since records began, according to latest research

Housing is now at its least affordable since records began, according to Leeds Building Society, as details emerged yesterday that the average 2-year fixed rate mortgage now stands at a staggering 6.43%.

Although interest rates of 6.43% may seem lower than the mortgage rates of 15% which borrowers were paying in 1980 for example, but there is a critical difference.

Surging house prices, driven by a lack of supply and historically low interest rates since the financial crisis of 2008, and the commensurate increase in household indebtedness, mean that the 6.43% mortgage rates of today are equivalent to a rate of 25.7% in 1980.

Richard Fearon, chief executive at Leeds Building Society, said: “We stand firmly on the side of homeowners and first-time buyers and will do everything we can as a lender to help them.

“The recent, rapid interest rate rises following the ‘mini budget’ have been a hammer blow to borrowers and will continue to cause distress for them over the coming months.

In 1980, the average UK house price was around £21,000 and mortgage costs accounted for 11.3% of disposable income.

Today, research shows that with the average 2-year fixed rate mortgage on offer to new customers currently standing at 6.43%, those figures are around £292,000 and 45.1% respectively.

The study released by the Society also found that the average home currently costs 9.1 times the average local wage compared to 3.5 in 1997.

This particularly impacts young people, as rates of home ownership amongst 25–34-year-olds have collapsed over the last 30 years. 

In 1996, home ownership levels for this age bracket were 65%, and by 2016, the level for this age group had fallen to 27% – giving them the label of ‘generation rent’.

Leeds Building Society has confirmed the ways it will help aspiring and existing homeowners during the current period of market uncertainty but underlined the need for Government to act as well.

Fearon added: “There is an urgent short-term need to restore market confidence and it is welcome news that the Chancellor has brought forwards his fiscal update to before the next MPC meeting.

“A credible balanced economic plan which has been subject to OBR scrutiny would reassure the markets, a lack of credibility could though trigger further uncertainty.

“But the longer-term aim of this Government should be to address the drastic shortage in housing.

“Borrowers now face the toxic combination of higher interest rates and a lack of suitable and affordable homes.

“With enough political will a decades-old problem can be overcome, which would start to deliver on the homeownership aspirations of millions of people.”