An interest rate rise of just 0.5% could lead to monthly mortgage payments soaring by an average of 40% for first time buyers, levels not seen for a decade.
The Bank of England will tomorrow (Thursday, August 4) deliver its interest rates decision amid a cost of living crisis. According to Rightmove, average monthly mortgage payments for first time buyers are currently £976 per month, compared with £813 per month in January 2022, a rise of 20%.
If interest rates rise by 0.25%, the figure would rise to £1,003 nationally. The payments for first time buyers currently stand at 38% of an average gross salary, but a 0.5% rise would bring the level to 40%, something not seen since 2012.
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The average asking price of a first time buyer home is at a record of £224,943 and a 10% deposit is about £22,494, which is 57% higher than ten years ago.
Tim Bannister, Rightmove’s housing expert, said: "First time buyers trying to get onto the ladder are currently facing average monthly mortgage payments that are 20% higher than the start of the year due to rising interest rates and asking prices, and that’s assuming they’ve been able to overcome the hurdles to raise a large enough deposit.
"A new record first-time buyer asking price of £224,943 means that a 10% deposit for a first-time buyer type home is now 57% higher than it was ten years ago, while average salaries have only increased by 31%.
"With each jump in interest rates, home-owners are contributing approximately 1% extra of their gross salary on average towards a mortgage, and a 0.5% increase in the base rate would take average monthly mortgage payments towards 40% of their salary, a level not seen since 2012, while a 0.25% rise would be around 39%.
"Average mortgage rates for a two-year fix are just over 3% compared to nearly 6% ten years ago, so they are still historically low. However, as they creep upwards, the large number of first-time buyers looking to move this year may look for some financial certainty by locking in longer mortgage terms. Demand for first-time buyer type homes is up 35% compared to the last ‘normal’ market of 2019, which shows a high motivation to move from first-time buyers despite the challenges."
The first-time buyer monthly mortgage payment is based on Bank of England data.
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