Nationwide sees affordability being stretched

That affordability is being stretched to the limit comes as no surprise. The income to house price ratio peaked at 7x income in the first quarter of this year and in London at 11x income. With lenders prepared to lend at 4.5-5 x income in most instances, it is not a surprise that people are being priced out of the market. The income to house price ratio has been at 5x income since 2008, so this is not a new challenge in the market. The biggest issue is that the Bank of Mum and Dad may well shut up shop in the current economic crisis, meaning buyers are unable to get the deposits they need to cover the difference between what the lenders will offer and the price of properties. This will hopefully drive lenders to be more creative in their lending, which we are starting to see with increased income multipliers for certain professions and income levels.

As interest rates rise, along with the other cost-of-living increases that are factored into lenders affordability calculations, we were always going to see lenders offering less for any given income than in previous years. However, we are seeing some innovation from lenders to help with this situation, such as now having different affordability rates for different income levels, or longer terms fixed rate deals that allow for higher loan sizes due to the reduced risk, for both the borrowers and the lender.

House prices fell 1.4% last month, the biggest fall since June 2020. Following on from the 0.9% fall in October, it shows the pace of house price falls is accelerating. A house price crash has begun and I think further falls of 15-20% in 2023 are looking increasingly likely. Whilst I have every sympathy for first-time buyers encouraged to buy at top dollar during the pandemic by Rishi Sunak's ill-judged stamp duty holiday, the best way to improve mortgage affordability is not with new 'schemes' but via lower house prices. What we really need is government policy to include house price growth in the 2 per cent inflation target, so they stay affordable.

Over the past few months, lenders have been tightening their affordability calculations as the cost of living crisis has hugely impacted household budgets. Lenders need to ensure that mortgages will remain affordable for the duration of the loan and some have tweaked their product offering to ensure that they can still help borrowers. It's not uncommon now to see borrowers opt to take mortgages that last between 30 to 40 years.

As interest rates and inflation rise, it's inevitable we'll see lenders offering less. What we need is more lenders offering products like the Nationwide. Their Helping Hand mortgage enables first-time buyers to borrow 5.5x their annual income, which has been invaluable for many of my clients.

Affordability has been stretched with everyone, across the board. With inflation at the level it is, it is not a surprise. Mortgage rates increasing has had a significant impact as it is generally the most expensive payment people make. There will be a knock-on effect with tenants as their rents will inevitably be increased to cover the higher mortgage costs for the landlords.