First-time buyers are being forced to put down deposits of double their annual income to secure a house amid high property prices and higher mortgage rates.
Figures from UK finance show that first-time buyers with household incomes of less than £50,000 are now having to put down deposits equal to twice their annual earnings
The financial effort is “significantly more than in recent years”, the report said, highlighting that households with lower incomes are being hit the hardest. “Borrowers with higher incomes have not seen the same shift in increased deposit requirements,” UK finance said.
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Homeowners are the worst affected by the cost of living crisis after mortgage interest costs jumped by 56% in the past year, the Office for National Statistics (ONS) has found.
UK mortgage rates spiked over the summer, but have been on a downward trend in the months since, with the Bank of England pausing its base rate hikes. Still, they are around 5% when an average two-year fixed deal was 2.34% back in December 2021.
This has left many UK households unable to repay their loan, with mortgage arrears rising by 9% to 99,840 in the three months to September.
UK Finance said that despite the “expected” increase in mortgage arrears, the figure accounts for less than 1% of the total number outstanding mortgages.
“The Financial Conduct Authority-mandated stress tests, which ensure borrowers can cope with higher interest rates, are working effectively to keep recent borrowers out of payment difficulties. The vast majority of customers who are in arrears took out their loans before these mandatory stress tests were introduced,” the report said.
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Over one million homeowners this year had to refinance on to higher mortgage rates. Next year a further 1.5 million Britons will need to move to new mortgage rates.
The cost of living crisis is also forcing many to delay their plans of jumping on the property ladder.
Lending for house purchases fell throughout the third quarter, with first-time buyer activity down by almost one fifth and home movers by one quarter, compared to the same period last year.
“Sustained house prices and rising mortgage rates have meant mortgage lending remained weak last quarter, and we expect this to continue in the fourth quarter of this year,” Eric Leenders, managing director of personal finance at UK Finance, said.
UK households are increasingly being pushed to dip into their savings to cover rising monthly bills.
“While the cost of living continues to challenge households, many are managing to avoid using overdrafts and still have a savings cushion to draw on,” Leenders said.
“Importantly, this won’t be the case for everyone, and we may see an increase in customers worried about their repayments. If anyone is struggling with personal loan, credit card or mortgage repayments, please reach out to your lender as soon as possible for help,” he added.
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