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Buy To Let

Housing ‘least affordable since records began’

Emma Lunn
Written By:
Emma Lunn

Looking at typical mortgage rates available today, and current house prices, Leeds Building Society has calculated that buying a home is now the least affordable it has ever been.

According to Moneyfacts, the average two-year fixed mortgage available now is priced at 6.43%. Analysts at Leeds Building Society looked at historical data to calculate the equivalent mortgage rates in previous years. It worked out that a 6.43% rate today is equivalent to a rate of 25.7% in 1980 when affordability is taken into account.

Many people have referenced 1980 – when interest rates shot up to 15% – when discussing the current housing crisis. However, although interest rates of 6.43% may seem a lot lower than 15%, house price inflation has had a significant impact on affordability.

Back in 1980, when interest rates were 15%, the average home cost £21,000, the typical household had disposable income of £18,049, and the typical annual mortgage payment was £2,037. Mortgage payments worked out to 11.3% of a household’s disposable income.

In 2022, the average home costs £292,000, households have typical disposable income of £37,622 a year and the typical annual mortgage payment is £16,979. This means mortgage payments account for 45.1% of a household’s disposable income – a lot higher than in 1980.

Leeds Building Society worked out that this means the 6.43% mortgage rates of today are equivalent to a rate of 25.7% in 1980.

Average home costs nine times average wage

According to the Office for National Statistics, the average home currently costs 9.1 times the average local wage compared to just 3.5 in 1997.

This particularly impacts young people, with rates of home ownership amongst 25 to 34-year-olds collapsing over the past 30 years. In 1996, home ownership levels for this age bracket were 65%, but by 2016 just 27% of this age group owned their home.

Richard Fearon, Leeds Building Society chief executive, said: “We stand firmly on the side of homeowners and first-time buyers and will do everything we can as a lender to help them. The recent, rapid interest rate rises following the mini Budget have been a hammer blow to borrowers and will continue to cause distress for them over the coming months.

“There is an urgent short-term need to restore market confidence and it is welcome news that the Chancellor has brought forwards his fiscal update to before the next MPC meeting. A credible balanced economic plan which has been subject to OBR scrutiny would reassure the markets, a lack of credibility could though trigger further uncertainty.

“But the longer-term aim of this government should be to address the drastic shortage in housing. Borrowers now face the toxic combination of higher interest rates and a lack of suitable and affordable homes. With enough political will a decades-old problem can be overcome, which would start to deliver on the homeownership aspirations of millions of people.”