image source, Getty Images
- Author, Nick Edser
- Role, Business reporter, BBC News
-
High mortgage rates mean affordability is still a “stretch” for many homebuyers, according to Nationwide.
The building society said that while earnings had grown faster than house prices in recent years, it had not been enough to offset the impact of more expensive mortgages.
His comments came as he said house price growth was “broadly stable” in June, with prices up 0.2% on the previous month.
The average house price is now £266,064, the lender said.
Prices were up 1.5% on the previous year, but Nationwide said housing market activity had been “completely stagnant” over the past 12 months, with transactions down about 15% compared to 2019.
The lender said the market was still being affected by rising mortgage rates, which started to rise after the Bank of England started raising its key interest rate in late 2021.
Robert Gardner, Nationwide’s chief economist, said mortgage rates are “still well above record lows set for 2021 due to the pandemic.”
“For example, the interest rate on a five-year fixed-rate mortgage for a borrower with a 25% deposit was 1.3% at the end of 2021, but has been close to 4.7% in recent months.
“As a result, housing affordability is still stretched.”
The national figures are based on building societies’ own mortgage loans, which do not include buyers buying homes in cash or buy-to-let deals. Cash buyers account for roughly a third of housing sales.
The impact of higher borrowing costs can be seen in the fact that mortgage transactions have fallen by almost 25% over the past year, Nationwide said.
Meanwhile, cash real estate transactions are about 5% higher than before the pandemic.
Across the UK, Northern Ireland saw the biggest price increase, up 4.1% on the previous year.
Wales and Scotland saw a year-on-year increase of 1.4%. Prices in England rose by 0.6%, with northern regions generally seeing larger increases than southern ones.
According to financial information service Moneyfacts, the average rate for a two-year fixed mortgage deal is 5.95%, while the average for a five-year deal is 5.53%.
The focus is now on the Bank of England’s Monetary Policy Committee (MPC), which sets interest rates, to see if it decides to cut at its next meeting on August 1.
“Buyers may find their heart again when we get a rate cut from the Bank of England,” said Sarah Coles, director of personal finance at Hargreaves Lansdown.
“That could come as early as August, although inflation in services and higher wages could mean we have to wait until the autumn.
“In any case, we don’t expect a massive drop in mortgage rates overnight, so the response will be a muted rise in sentiment rather than a huge wave of optimism.”
These are homeowners who negotiated mortgage deals before the bank started raising rates in 2021.
These deals are now expiring and the bank said most of them will end by the end of 2026.
For a typical household looking for a new deal, monthly mortgage repayments are expected to rise by around £180, or around 28%, the bank said.
However, for around 400,000 households, monthly payments could jump by 50% or more.
But the data also showed that the amount borrowed through mortgages fell sharply to £1.2bn in May from £2.2bn a month earlier, although this does not include remortgage with the same lender.
Ways to make your mortgage cheaper
- Make overpayments. If you still have some time to get a low fixed rate deal, you may be able to pay more to save later.
- Switch to an interest-only mortgage. This can keep your monthly payments affordable even if you don’t pay off the debt incurred when you bought your home.
- Extend the life of your mortgage. A typical mortgage term is 25 years, but 30 and even 40 year terms are now available.
How do mortgage interest rates affect your life?