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Mortgage affordability at its best for 10 years
Mortgage affordability has hit its best level for 10 years, according to new research released this week from Barclays, but the lender is urging homeowners to look ahead and be prepared for any increase in their payments. In an analysis of more than one million customers’ accounts1 it found that, on average, people paid out 15.4% of their take home pay at the end of December 2010 to cover their monthly mortgage payment, the lowest level registered as part of the analysis, which is now in its tenth year.
The trend, attributed largely to low interest rates is despite the average house price having increased by 68%2 over the same period and the average salary increasing by just 37%.3 Supporting opinion research commissioned by Barclays found the majority of homeowners say they are comfortable with their current payment levels.
The poll of over 1,000 homeowners who have bought their home with a mortgage found that 13% say they can easily afford their current mortgage repayments and are not worried if interest rates rise; 39% class themselves as comfortable, and with some room for manoeuvre, and 28% are stretched but still have disposable income available to help them navigate a rising interest rate environment. Of those who said their mortgage was actually less affordable than a year ago, over a third (36%) cited lower salaries as the main cause, while an additional 29% said their other outgoings had increased.
Yet with commentators predicting an uplift in interest rates this year - and 74% of those polled agreeing that interest rates will increase in 2011 - Barclays is urging homeowners to ensure they keep their mortgage repayment levels under review.
Andy Gray, head of mortgages at Barclays, said: "It stands to reason that with interest rates at an historic low, mortgage affordability is at its best in a decade, but it is crucial that homeowners are not complacent. When asked specifically about coping with rising interest rates, it was great to hear that 71% say they either already have a plan in place to manage increased monthly mortgage repayments, or that they will be unaffected as they are on fixed rates. But homeowners who are not already thinking about their mortgage certainly need to be, to ensure they have a contingency plan when interest rates start to increase.”
When asked about their budgeting for 2011, a third of people (33%) said the cost of petrol was their main concern, while an additional 15% said they were most concerned about rising energy bills. Mortgages came third on the list of priorities, with 14% citing it as the main focus of their budgeting for this year.
Andy Gray added: “We know that other financial factors are likely to bite this year, but homeowners can’t afford to forget about their mortgage. The cost of petrol or rising energy bills may be beyond their control, but homeowners have a golden opportunity now to ensure they have made plans to ensure their mortgage remains affordable through 2011 and beyond. This could be as simple as remortgaging which could also help with their other rising household costs.”
Homeowners who are reviewing their mortgage arrangements can take advantage of the Barclays Woolwich ‘Great Escape’ package, which allows borrowers with a mortgage of up to 80% loan-to-value to switch their mortgage to Barclays with no application fee, free legal work and valuation and £300 cashback to cover the cost of a borrower’s exit fee5 for leaving their present lender. For further information on Woolwich mortgages from Barclays please visit www.barclays.co.uk/mortgages.
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