Rising mortgage costs have laid waste to the finely tuned budgets of those reaching for the first rung of the property ladder as well as those looking to climb higher.
Many of the current generation of first-time buyers haven’t seen the current high mortgage rate levels in their adult life.
The sudden surge in the cost of home loans is a jarring and abrupt shift from the era of low mortgage rates spanning almost 15 years from the financial crash. The burden upon buyers’ financial shoulders is exacerbated, as their hard-earned funds are stretched thin to meet the escalating mortgage obligations.
For those who already have their foot in the door of homeownership with an existing fixed rate mortgage deal, those manageable monthly mortgage payments transform into towering behemoths once the fixed rate period comes to an end, demanding a larger chunk of hard-earned income. Rising mortgage rates cast a dark shadow over their refinancing plans.
Housing affordability is determined by mortgage rates, house prices and wages and all three factors aren’t playing ball for would-be buyers.
“House prices, while falling, remain at levels many can’t afford while the recent increase in mortgage rates has pummelled buyers, and inflation is chipping away at the real value of home deposits and continues to outstrip wage growth – meaning workers lose money in real terms, as they need to spend a higher proportion of their wages to buy the same goods.
The good news is the fall the expected fall in inflation, lead by the dip in the cost of wholesale energy, should provide relief to squeezed budget and aid deposit building efforts. House prices are expected to continue to fall this year which would also help matters.
Many first-time buyers are playing the waiting game in hope for a fully-fledged crash in house prices and in hope of a better mortgage deal in the near future.
The levels at which mortgage rates will stabilise remains unclear, and those waiting for house prices to fall further before buying should bear in mind that trying to time the bottom of the market is nigh on impossible – you could easily miss the moment.
Myron Jobson is senior personal finance analyst at interactive investor
