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Mortgage repayments relative to income

ended 16. June 2023

The Mail Online is running a big piece this morning on new research showing that homeowners are spending the biggest slice of their income on mortgage repayments since the financial crisis of 2008. Also, according to Moneyfacts, the average two-year fixed rate mortgage has apparently jumped from 5.92% yesterday to 5.98% today. Any thoughts on what this means for borrowers, the property market and whether it could result in more defaults/arrears as people's repayments skyrocket (relative to income), send them across ASAP. Make sure you have a mugshot in your Newspage media pack as they like to run pics.

10 responses from the Newspage community

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Ross Lacey
Director & Independent Financial Adviser at Fairview Financial Management
The aim of the Bank of England's increases to interest rates is to bring down inflation. Given that mortgage payments generally make up a large part of household expenditure, the thought process is that if borrowers are having to allocate a greater portion of their income to their mortgage payments, they will reduce spending elsewhere. This hasn't been seen to the extent expected as yet, as many are still on sub-2% fixed rates. We've been helping our clients remortgage onto the most competitive rates available, reducing their loan-to-value if possible, and increasing the term of their borrowing which all go someway to offsetting the effect of higher interest rates.
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Bob Singh
Founder at Chess Mortgages
Neither a borrower or lender be ! As someone wise once said.
We live in difficult times with the market on knife edge. It can really only go one way right now…down!

With the current chaos in the markets it may be wiser to watch than engage right now. The former Bank of England Governor Mark Carney stated he expects rates to remain high for quite some time. That’s to say they will not return to the lows seen over the last dozen years or so.

Borrowers could be forgiven for feeling nervous but if they pass the affordability tests and need to be on the ladder ( for whatever reason ) then as long as they manage their finances well and don’t take on additional debt post completion they shouldn’t be troubled too much particularly with a fixed rate.

House prices will fluctuate as will rates. It’s just that one should take advice and try and navigate the immediate future based on the markets at that time.

With rates expected to rise further next week act fast

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Jamie Elvin
Director at Strive Mortgages

While there have been reports of sharp increases in mortgage missed payments and defaults, we have yet to see the full impact of the rate rises. More than 100,000 fixed-rate mortgages are due to expire each month and will begin to feel the pinch. It will come as an unwelcome inconvenience to those who are not highly leveraged, they will have less surplus income but they will still be able to pay. However, those who are highly leveraged or have seen an increase in outgoings or a decrease in income will really struggle and are at high risk of default.
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Elliott Culley
Director at Switch Mortgage Finance
With mortgage rates now starting with a 5 instead of a 4, it is getting harder and harder for clients to stomach the new monthly payments. Most clients are wanting short-term fixed rates at the moment with forecasts expecting a reduction in interest rates over the next 18 months. But these come at a cost and, as a result, some borrowers are resorting to extending the mortgage term. In most cases, this is with the plan to reduce the term again when rates reduce. There will be some borrowers who don't have the option to extend the term and if rates rise much further, there is a greater chance of people having to seek assistance from their current lender.
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Rob Gill
Managing Director at Altura Mortgage Finance
We're seeing an increasing number of remortgage borrowers seeking advice on not just the lowest available rate but also how to restructure their mortgage to lower their monthly payments. Paying down their mortgage, increasing the term and making all or part of the mortgage interest-only are all options that can be explored. The right advice to discuss longer-term plans with clients, including how they will eventually pay off the mortgage or meet mortgage payments if the term extends into retirement, needs to be sought by borrowers considering such options.
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Graham Cox
Director at Bridging Hub
Rates have soared in the past couple of weeks, drastically hitting mortgage affordability and reducing maximum loan amounts. Much will depend on whether the inflation outlook improves over the coming months. If mortgage rates stay at these levels for any length of time, then very significant house price falls are likely, perhaps 20% or more over the next couple of years.
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Gary Bush
Financial Adviser at MortgageShop.com
Mortgage lenders tweaking their fixed rates upwards twice in a week, sometimes more frequently, has caused chaos with applicant transactions. With next week almost upon us, our eyes are fixed on the inflation announcement on Wednesday morning. This will be the driver for the all-important Bank of England monetary committee meeting on Thursday and indeed the Swap market thereafter. Cross your fingers, legs, or anything for next Wednesday morning's inflation announcement.
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Jonathan Burridge
Founding Adviser at We Are Money
Few predictions at the start of the year saw this latest round of rate rises and that should serve to warn borrowers that no one knows the future. All forecasts prove to be wrong or lucky. There will be a great many people worried about their mortgage costs rising, so they should be engaging in a review as soon as possible. Borrowers should try not to panic, we cannot control rates but, term extensions or changes to repayment method may alleviate some financial pressure. What will happen to house prices is irrelevant if you can afford your payment and you are an owner-occupier. If you want to buy a home now you could wait and see if values drop and, of course, they might. However, if they do, we don't know by how much and for how long and all the time you wait you are just delaying being a home owner and waiting may not be to your advantage. Forget rates and focus on affordability, forget short-term property value and look at the longer term.
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Scott Taylor-Barr
Principal Adviser at Barnsdale Financial Management
Whilst it is worrying to see mortgage costs taking up such a large element of people's income, it is not yet at a critical point. UK homeowners will do all they can, in most cases, to ensure their mortgage payments are made and they retain their home. Many have worked far too hard to get on the property ladder in the first place and now they may never get back on. This means, when things get tough, we will see falls in other spending areas before we see a sharp increase in mortgage arrears. It will be things like Netflix, Sky and BT Sport reporting a fall in subscribers that will be the precursor, with pubs and restaurants reporting huge drops in footfall and other "luxury" expenses taking a really heavy hit, before we see really significant increases in mortgage arrears and possessions.
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Alex Reynolds
Partner at Advies Private Clients
Whilst clients may indeed be spending the highest portion of their income on a mortgage than ever before, it is worth noting that these statistics are based on the average income, not the average household income. Many households have 2 incomes and as such the affordability is not quite as bad as some commentators are making out.
The increase in rates is still an issue and one that every household needs to manage carefully and that is where the value of a good adviser comes into play.