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Upward Blip in Mortgage Affordability
Interest rates may be going down, but the cost of servicing mortgages jumped in August 2005, mortgage affordability research by the Woolwich has concluded.
In July mortgage repayments took up 18.4 per cent of borrowers' household disposable income, but last month the figure was up to 18.7 per cent, 0.7 per cent more than in August last year.
In London, which experienced the biggest regional increase, the figure jumped from 22.7 per cent in July to 23.4 per cent in August.
Nationally, average mortgage payments increased from £502 in July to £512 in August 2005.
"Despite these increases the message to mortgage borrowers is that the cost of mortgages has been stable for some time but that we should expect the odd blip along the way', said Woolwich head of mortgages Andy Gray.
"There are a number of reasons why there has been a jump and historically it tends to correct itself later in the year. Following the cut in interest rates in early August most variable rates were cut at the beginning of September. Many people are on fixed rates which will not immediately change, so in these instances the reduction will not have impacted on the August data. Also our own research indicates that July and August is the most popular time for people taking out new mortgages, and so there are a disproportionate number of people coming to the end of their existing term product".
A significant number of fixed and discounted rate mortgages were arranged in 2004 when base rate was between 3.50 per cent and 3.75 per cent. Many borrowers will therefore now be switched onto a standard variable rate or they will be re-mortgaging at current rates
At a regional level, only Wales kept repayments at the same percentage of income (16.3 per cent); all others experienced an increase. As well as London, the south west saw a substantial increase, moving up from 18.2 per cent to 18.8 per cent.
Research for the Chartered Institute of Housing Cymru shows that for Wales' younger working households the average house price (put at £107,864) to income ratio (£27, 039) ration is now four to one.
"This research confirms what we already knew about the problems facing younger people in Wales. Young households are being forced out of the property market across the country, and it is particularly bad in areas where wages and salaries are low, yet demand for homes is high," said CIH Cymru rirector Keith Edwards.
Research author Professor Steve Wilcox from the Centre of Housing Policy at the University of York found that younger working households in attractive rural areas were the worst effected - Ceredigion, Pembrokeshire, Powys and Monmouthshire had price to earnings ratios in the region of five to one or above - worst of all were Ceredigion and Pembroke (both with ratios of over five and a half to one.