Average mortgage payment now a third of monthly income

The average mortgage repayment is now accounting for around a third of the average monthly income, new estimations from Octane Capital have indicated.

The specialist property lending expert calculated the average monthly mortgage repayment as a proportion of average monthly salary and discovered that mortgages are on their way to being as unaffordable today as they were during the recession of 2008.

Based on the current average house price of £276,019, according to the UK House Price Index from the Office for National Statistics (ONS), and a three-year fixed-rate mortgage with a 75% LTV, a buyer today would be looking at a loan amount £207,014 once a 25% deposit worth £69,005 has been accumulated.

Octane Capital’s calculations also factored in an average rate of interest of 1.84% paid over a 25-year term, which equates to an average monthly mortgage repayment instalment of £859.41.

Meanwhile, the average annual gross salary in the UK is £31,447, working out at £2,621 per month. Therefore, the average mortgage repayment today equates to 32.8% of monthly income. This figure is 5% higher than it was pre-pandemic, standing at 27.8% in December 2019.

The figure of 32.8% also means the real cost of a mortgage is approaching the level it was at during the recession of 2008in the aftermath of the banking crisis, when the average mortgage repayment accounted for 34.3% of monthly income, just 1.5% more than where it stands today.

Octane Capital CEO, Jonathan Samuels, commented: “The cost-of-living crisis is a current cause of great concern and many homeowners are not only combating the inflated cost of day-to-day living, but also the monthly cost of their mortgage following a string of interest rate increases. 

“At the same time, wage growth has simply failed to keep pace with these rising costs and so the proportion of our income required to cover our monthly mortgage commitments is now substantially higher than it has been for many years.

“Unfortunately, this cost only looks set to increase as we expect to see interest rates increase further throughout the year. The best advice for those currently struggling is to consult a mortgage professional and see if they can swap to a product offering a better rate. For those currently looking to buy, it’s vital to factor in any potential increase and not to borrow beyond your means based on current rates.”

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