First-time buyers in the UK are paying 41% more in monthly mortgage repayments than a decade ago, despite property prices remaining broadly stable in real terms, according to research from estate agency Yopa.
The analysis reveals that whilst house prices and deposit requirements have not significantly increased when adjusted for inflation, rising mortgage rates have substantially increased the cost of homeownership for new entrants to the market.
Mortgage rate comparison
In 2016, the average two-year fixed mortgage rate at 75% loan-to-value stood at 1.72%, resulting in monthly repayments of £600 over a 25-year term, equivalent to £860 in today’s money. The current average mortgage rate of 5.13% translates to monthly repayments of £1,213, representing an additional £353 per month.
The average UK property price in 2016 was £195,035, equivalent to £279,293 in today’s money. The current average property price stands at £273,037, making homes £6,256 cheaper in real terms than a decade ago.
Impact on affordability
Verona Frankish, Chief Executive of Yopa, said: “House prices have long been the focus of the affordability debate, but our research demonstrates just how significant an impact mortgage rates have on the actual cost of getting onto the property ladder. That’s a substantial additional financial commitment for those looking to purchase their first home.”
The findings come as the UK housing sales outlook has weakened to a three-year low, reflecting broader challenges in the property market.
Data from Moneyfacts indicates that higher loan-to-value deals are increasing in number as first-time buyers take on larger mortgages. Borrowers with limited deposits of 5% or 10% are facing average fixed rates above 6%.
Government intervention
Chancellor John Healey introduced a new scheme for first-time buyers in his Budget last month, though the programme is restricted to new-build properties only. The initiative comes amid growing concerns about affordability barriers for those attempting to enter the property market.
The research highlights how mortgage rates, rather than property prices alone, have become the primary driver of affordability challenges for first-time buyers. With rates remaining significantly above historic lows, the financial burden of homeownership continues to increase despite relatively stable house prices in real terms.
