This had caused some first-time buyers to abandon hope of getting on the ladder, homeowners have been caught out by rising mortgage repayments and soaring rents have forced young tenants from the capital, after the disastrous mini-budget of September 2022 marked the beginning of an unprecedented flurry of interest rate rises.
In just 12 months, the Bank of England increased the base rate seven times (from September 2022 to August 2023) to 5.25 per cent in order to curb inflation. A possible rise expected tomorrow would mean that UK households have stomached 15 consecutive rate hikes.
This has sent shockwaves through the housing market, with the average mortgage interest as a percentage of income more than doubling from 7.1 per cent to 14.7 per cent since last summer and the total mortgage repayment jumping from 16.8 per cent to 20.6 per cent, new research by Savills reveals.
I was angry and disappointed, I had looked after the place so well and felt it was my home, only to be forced out
“The average buyers’ mortgage bill has gone from £19,355 per year (£1,613 a month) to £27,237 per year (£2,270 per month),” says Lucian Cook, head of residential research at Savills, meaning the average homebuyer has to find another £650 a month to afford a property.
Cook says: “London’s existing housing issues became even more intense in 2023.”
My rent jumped more than a third
Hannah Churchill, 29, moved into a three-person flatshare in a Victorian terrace in Archway in 2021, paying £550 a month. A year ago her rent was raised by three per cent to £564, which she could manage. However, shortly after the mini-budget, with her contract nearing expiry, she was given a week to sign a new contract with her rent going up 23 per cent.
“I was angry and disappointed, I had looked after the place so well and felt it was my home, only to be forced out. You don’t have a voice as a tenant anymore as there is such demand for property,” she says.
Churchill, an actress and producer, “sofa surfed” for a month before a friend offered her a room for £600 a month in Finsbury Park. “The landlord said that the increase reflected the current market but it was certainly not an increase that reflects inflation. My wages have not increased by 23 per cent,” she says.
For many it means staying put and “swallowing” higher rents or mortgage repayments and dramatically cutting spending on other things.
“I have never seen the rental market so hot… There is not enough stock and there is no let-up in demand,” says Marc Von Grundherr, of Benhams estate agents.
I have never seen the rental market so hot
The increased cost of buying a home has forced more first-time buyers to ditch plans to purchase a property and continue renting. On top of this, more buy-to-let landlords have stopped renting out their flats in order to sell. In combination with the return to the office, the rental market is being flooded with tenants, Von Grundherr explains.
Analysis from Hamptons reveals that for an individual living alone, the average rent accounts for 63 per cent of their salary (excluding bills), the highest since before the pandemic.
Dating and relationship expert Clarissa Bloom, who also works for the stag do planner thestagcompany.com, says she can’t afford to go on a date herself. “Asda basics is now my new Friday night,” she says. Her studio flat in Hounslow went from £850 per month to £1,250 — an increase of 32 per cent. “They were going to charge £1,350 but I pleaded with them. The compromise was still a heavy increase and I will have to move on as I simply can’t afford to lose that much each month,” Bloom says.
An exodus of talent
Rents are rising at an astronomical rate, according to Polly Ogden, managing director of John D Wood. “We are seeing rents put up 40 per cent between tenants. People cannot afford to buy and now they cannot afford to rent either,” she says. This poses a bigger threat to the vibrancy of the capital as young Londoners are forced to move out.
The idea of ever being able to purchase my own property years from now is becoming an increasingly impossible dream
Hamptons research reveals that 40 per cent of London-based tenants on their books left the capital for the home counties this year, slightly higher than during the pandemic (38 per cent in 2021).
“More and more talented, creative people are being pushed out of their homes,” says Churchill. “The idea of ever being able to purchase my own property years from now is becoming an increasingly impossible dream.”
My grown-up sons have moved back home
Tech entrepreneur Nigel Walley lives with his wife in Chiswick. The couple are reverse empty nesters as both their grown-up sons have moved back home due to high housing costs. Conor, 26, is on his third job in the gaming industry in Soho and was renting in inner London. Harry, 24, is on his first job in gaming after graduating from Manchester.
“Given over half of their wages would have been spent on some dingy flat, they have decided to stay at home and save for a deposit,” says Nigel. But their social lives and their sense of independence have both taken a knock. “They are trading their freedom of having their own place against the ability to plan for the future,” he says.
First-time buyers are hit hard (again)
The section of the market that is really suffering are the first-time buyers, according to Arnold. “Those who made their first-ever purchase in 2020 and 2021 on a two-year fixed mortgage at a relatively low interest rate are going to be really stretched when it comes to refinancing,” he explains.
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For many wannabe first-time buyers, the rise in interest rates will have dashed their home ownership hopes. Traditionally, the hurdle for first-time buyers was the size of a deposit. That is still an issue — in fact the average deposit has risen from £207,896 last summer to £210,025 — but now it is also about how much debt you can take on too.
“A first-time buyer taking out a mortgage will pay significantly more than they would have done a year ago, particularly in London where there are also higher property prices to contend with,” says Mark Harris, chief executive of mortgage broker SPF Private Clients. “To make payments more manageable, many first-time buyers are extending their mortgage terms to 35 years.”
Things will get worse before they get better
The average mortgage rate has rocketed nearly threefold from 1.98 per cent a year ago to 5.60 per cent. As a result, a third of mortgage-payers (34 per cent) in London think they will struggle to meet repayments in the next six months (up from 21 per cent in January), according to analysis from City Hall.
“Those in their 40s and 50s might remember that six per cent interest rates are not that unusual. But younger homeowners and wannabe first-time buyers will have been shocked by the pace at which interest rates spiked,” says Ogden.
People are on borrowed time. As every month ticks by more households will exit their fixed-rate mortgage agreements
So buyers have scaled back their budgets, transactions have dropped and house prices have fallen. Earlier this month Halifax reported that house prices in London had slid 4.1 per cent over the last year, a drop of £22,777, and the biggest decline of any region.
For Ogden prices will continue to fall. “People are on borrowed time. As every month ticks by more households will exit their fixed-rate mortgage agreements. This creates uncertainty as people cannot predict what this will mean for their repayments or their household budgets,” she says. “For those who want to sell there is no point holding out. While current prices may be a hard pill to swallow, they are higher today than they will be tomorrow.”
Peter Arnold, chief economist at the consultancy firm EY, agrees: “For the next three or four years we’ll see that pain being felt as it takes time for those higher rates to pass through.”
My mortgage jumped from £800 a month to £3,000
Compliance officer and mother-of-two Katie Le Roux managed to hold onto her one-bedroom flat in Putney after her first son was born 11 years ago. She and her husband bought a three-bedroom house a few streets away, rented out the flat and juggled two mortgages.
For the next three or four years we’ll see that pain being felt as it takes time for those higher rates to pass through
However, the interest-only mortgage mean that in July this year her mortgage rate jumped from 1.84 per cent (a monthly repayment of £872) to 5.9 per cent (a monthly repayment of £3,038).
“We knew some kind of significant increase was coming so we put the flat on the market last year but have not been able to sell it. This summer I have redecorated it and lowered the price and now we’ve had 13 viewings and one offer this week for £700,000. The asking price is £750,000 but I think we’ll have to take it,” she says.
Back in covid territory
Lenders are readying to deal with more customers reaching the end of their fixed-rate terms and facing higher interest rates and therefore higher mortgage repayments. “We are back in Covid territory when banks had to offer mortgage holidays,” says Cook.
This summer, the Treasury published the Mortgage Charter, signed by 90 per cent of lenders and designed to ease anxiety of mortgage holders in a high interest rate and inflation environment.
If a customer is going to struggle to make repayments but is not in arrears, the banks can either switch the mortgage temporarily to an interest-only deal or can extend the length of the mortgage. Both these arrangements cut monthly repayments but make the mortgage more expensive long-term.