Mortgage repayments for first-time buyers surge by two thirds

Soaring interest rates and a rise in house prices drove up the cost of a typical first-time buyer’s mortgage repayments by almost two thirds last year, according to the Office for National Statistics (ONS).

In the 12 months to December 2022, the typical monthly bill rose by £481 to £1,262, an increase of 61%. The calculations were based on an average £286,000 semi-detached home and a 75% mortgage with a 25-year term.

Monthly repayments on newly issued mortgages have increased significantly over the past year because of rising interest rates increasing the cost of borrowing. House prices were 9.8% higher in December 2022 compared with a year earlier.

Previous Office for National Statistics (ONS) analysis, in our How increases in housing costs impact households article, found that more than 1.4 million households in the UK are facing the prospect of interest rate increases when they renew their fixed rate mortgages in 2023.

The data also found that. the monthly cost of a new mortgage rose by 61% in the year to December 2022 for the average semi-detached house in the UK.

Commenting on the figures, Laura Suter, Head of Personal Finance at AJ Bell said “Rising house prices and soaring interest rates mean mortgages have become unaffordable for many homeowners over the past year, with the monthly mortgage cost on the average UK property rising by 61% – adding almost £6,000 to the annual mortgage bill.”

“The problem is spread across the UK, with mortgage costs rising above £1,000 a month in two-thirds of the local authorities in Great Britain*. The situation is even worse for those wanting a detached house, where a limit of £1,000 a month on mortgage costs would restrict them to just one local authority area in the UK – County Durham. This is a stark comparison to the end of 2021, when you would have been able to buy a property in a third of local authorities around the UK with that same £1,000 a month budget.”

“In London the average detached property would cost £1,758 a month, while in the south-east it would cost £1,178. Based on the average UK salary of £33,280 that cost in the south-east represents 53% of your take-home pay**, while in London it’s 80%. Even the cost of flats across the UK are now unaffordable for many, costing almost £700 a month in London and £377 a month in the south-east.”

“The figures lay bare the nightmare facing the 1.4 million homeowners who need to re-mortgage this year. Some will be able to stomach the higher costs or extend their term to reduce their monthly repayments, but others will find the increases unaffordable on top of other increases to the cost of living.”

“While interest rates have risen across the globe, UK homeowners are far worse off than those in other developed countries to be able to afford their monthly repayments, according to a new report by Fitch Ratings. The expectation is that the number of people missing more than three months of mortgage payments will double this year, as the aftershocks of Liz Truss’ catastrophic mini-Budget are still being felt in the mortgage market.”

“There’s no doubt this will have some knock-on effect on the housing market, with some people shelving plans to upsize their home, while many first-time buyers find their homebuying plans are put out of reach by rising costs.”