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Servicing Mortgages Increasing Disposible Income
The cost of servicing mortgages is taking up an increasing amount of disposable income, according to research from the Woolwich, with Wales the only place in the UK to escape the rise last month.
The research shows nationwide mortgage costs jumped in August to 18.7% of borrowers household disposable income compared to 18.4% in July 2005.
However, in London, costs rose from 22.7% in July to 23.4% in August.
Consumers are now paying an average of £512 a month.
Andy Gray, head of mortgages for the Woolwich, said, "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 at the beginning of August most variable rates were cut at the beginning of September and many people are on fixed rates which will not change, and therefore will not have impacted the August data.
"Also, our own research indicates that July/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 3.5% and 3.75%. Many of these customers will either go onto a standard variable rate or re-mortgage with products that are currently at higher rates than when they took out their original loan, or last re-mortgaged.
"This leads to higher payments and hence pushes the mortgage affordability ratio upwards. A similar hike occurred last year between July and August when the ratio increased by 0.4%."