New research suggests that people are vastly underestimating the amount of money that a mortgage will cost, and that the average household does not have enough disposable income to spend on mortgage payments.
According to the financial service Experian, the average price of a property targeted at first-time buyers is £235,000, and the typical income of a household is around £50,000.
A survey of potential homebuyers estimated they would be able to afford a monthly mortgage payment of £780. But with a 10% deposit on a £235,000 mortgage, the monthly payout would be more likely be about £1,300, according to ThisIsMoney.co.uk.
As bad as this underestimation is, it is likely to only get worse, as many experts feel that the Bank of England will have to raise the interest rate next year.
The claim of £780 disposable income is supported by the research. Around £371 is found to be spent on average on socialising hobbies and non-essentials, while living costs equal about £603. With a potential raise in interest in the pipeline, the average person will be unlikely to be able to afford mortgage payments.
The stress tests that lenders have been carrying out since April into potential borrower’s income and outgoings will likely reduce the amount of people being offered mortgage deals.
House prices are already on the rise, especially in London, arguably as a result of Osborne’s Help to Buy scheme. This could make the future housing market look very different, with less and less people becoming homebuyers, the amount of people renting will rocket.
