First time buyers will need to earn £12,250 more to afford a home as mortgage rates are set to be hiked up further this year, Zoopla has claimed.
Meanwhile, hopeful buyers in London will need a massive £35,000 more income to take out a loan on the average property compared to a year ago, according to the property portal’s house price index.
With interest rates being hiked up by the Bank of England to help curb spiralling inflation, first-time home buyers are set to be the biggest casualties of increasingly unaffordable mortgages.
Demand is getting shakier, and the first-time buyers who have been propping the market up are feeling the strain
Sarah Coles, analyst
The central bank set the base interest rate at 1.75% in August, marking the biggest single increase in 27 years.
City traders predict that rates could reach 4% in the new year as double-digit inflation in the UK climbs up even further.
First-time buyers on lower incomes, homeowners looking to trade-up their current home, and buyers in the south east of England and the capital will feel the greatest impact in terms of what they can afford, Zoopla warned on Friday.
Furthermore, property prices continue to get higher, with the average home now costing £19,800 more than it did last year. This is an 8.3% jump over 12 months, Zoopla said.
It also means that buying could become more expensive than renting in some regions as a result of higher interest rates pushing up the cost of monthly mortgage repayments. Until recently, this has not been the case for all areas outside London.
However, housing demand has not weakened as much as people might expect, despite higher prices and rising living standards, Zoopla noted.
This is because homebuyers tend to have higher disposable incomes and are more cushioned against the impact of increased living costs.
In contrast, lower-income households tend to rent or own their home outright and spend more of their budgets on essentials and utilities, the property site added.
But while the housing market has so far been resilient, house sales are likely to cool off from autumn into 2023 once we start seeing the impact of higher costs on first-time buyers’ affordability, experts said.
Sarah Coles, senior personal finance analyst at Hargreaves Lansdown, said: “The property market may not be as safe as houses, because while annual price rises are still impressive, there are signs of weakness creeping in.
“Demand is getting shakier, and the first-time buyers who have been propping the market up are feeling the strain.
“First-time buyers are the engines of the housing market, particularly at the moment when they make up just over a third of all sales.
“When they get cold feet, it seizes up the rest of the market, so those who want to move up their ladder find it impossible to shift their old property, and are stuck in limbo.”