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First-time Buyer

Mortgage repayments hit 40% of salary as house prices soar

Paloma Kubiak
Written By:
Paloma Kubiak
Posted:
Updated:
26/09/2022

A new first-time buyer can expect their monthly mortgage bill to swallow two-fifths of their gross salary – the highest level since 2012 – as house prices continue to rise.

Debt repayments on homes average £1,057 for first-time owners, which is set to rise to £1,114 as lenders pass on the latest 0.5% rate increase from the Bank of England.

Rising house prices continue to drive up costs for borrowers, with a 0.7% increase in the average asking value this month, according to property website Rightmove.

Demand among these home hunters has fallen back by 8% on the same period last year – though it is still up by 27% compared to pre-pandemic.

The stamp duty cut announced by the Chancellor last week could help some buyers, as two thirds of homes are now exempt from stamp duty for first-time buyers in England.

Rightmove said the stamp duty changes could drive wider demand, which is already up 20% on the pre-pandemic five-year average, higher still.

The middle and high-end parts of the market largely drove price increases this month.

Values in this sector of the ‘second stepper’ market reached a fresh record high of £340,513, according to Rightmove.

The number of homes coming to the market has increased back to 2019 levels, helping to give eager buyers more choice.

‘Demand continues to outweigh supply’

Tim Bannister, Rightmove’s director of property science, said: “Prices are likely to remain strong while demand continues to outweigh supply. However, it is as important as ever to price competitively, especially in the sectors where there is now more choice, as there is a fine line between a realistically priced home and a home that feels overpriced when many buyers are making every pound count.”

He added: “The housing market continues to be extremely resilient even in the face of the economic headwinds that are stretching household finances.

“The rising cost of living is increasingly playing a role in some buyers’ considerations, as they look at their budgets and what they can afford.

“Demand has been softening over the last few months, but Friday’s announcement is likely to stimulate some more demand.

“If it does lead to a big jump in prospective buyers competing for the constrained number of properties for sale, then it could lead to some unseasonal price rises over the next few months.”