Households hit as mortgage costs account for 28% of disposable income

Mortgages are something that homeowners spend a lot of money on, regardless of how big or small they may be. Your mortgage is relative to you. Research suggests however, that the percentage of disposable income required to cover the average mortgage repayment is at its highest - a massive 27.6% in 2022. While this may be surprising for some, especially with the pandemic and current state of the economy, mortgage expenses are soaring.

House price inflation impacting household income

Although rising interest rates have started to increase the average mortgage available, the current rate of 1.93% remains significantly lower than the 3.92% average found in 2021. At the same time, the average level of disposable household income has increased from £34,175 in 2012 to £38,108 in 2022. Although our cost of living is evidently rising, many jobs have become remote since COVID-19, increasing earnings and disposable income.

Despite this, the percentage of household income required to cover mortgage costs has risen significantly in recent years due to an inflation of 65% in average house prices.

A comparison of mortgage rates from 2012 to 2022

Three-year mortgage rate in 2012

In 2012, homebuyers paid £7,940 for a three-year fixed-rate mortgage at 75% loan to value and a 3.92% average rate. With a median household income of £34,175, over 23.2% of the mortgage was required to cover the annual costs.

Three-year mortgage rate in 2021

An analysis of the 2021 average mortgage rate for a three-year fixed product was found to be a decade low of 1.55%. However, house prices were hitting £259,1871, and so the average repayment for homebuyers on their mortgage was £9,384 annually. Standard household income had also surged to £37,622, seen as the highest level of disposable income since 2012 - the repayment cost being 24.9% of said disposable income.

Three-year mortgage rate in 2022

Thus far in 2022, both the average house price (£277,539) and a string of base rates have risen, while also lifting the average mortgage rate on a three-year fixed product to 1.93%.

Despite household disposable income rising to its highest level in a decade (£38,108), the percentage required to cover a mortgage is currently at 27.6% - by far the highest level in the last decade.

‘Mortgage rates will continue to climb’ - GetAgent CEO Colby Short

“We’ve now seen a number of interest rate hikes in quick succession, and this will understandably come as a worry to the nation’s homebuyers, who will be facing higher mortgage costs as a result.

However, this isn’t the driving factor behind a lack of housing market affordability, and, in fact, the cost of borrowing remains low when compared to the rates seen a decade ago. At the same time, the average household is benefitting from a greater level of disposable income, but despite this, a larger proportion is required to cover the cost of a mortgage.

This increase is being driven by house price inflation, with the average buyer paying almost £109,000 more than they were 10 years ago.

Unfortunately for those struggling to climb the ladder, there’s currently no end in sight where the pandemic house price boom is concerned and it’s only likely that mortgage rates will continue to climb for the foreseeable future.”

Methodology and data

Topline mortgage rates and payments vs household income : Fixed rate vs household income each year