Credit agency Experian has found that people in the market to buy a home are underestimating the cost of their repayments by around £500 a month when they are preparing their budget before going ahead with the mortgage. It is believed that this shortfall could increase to £650 when the interest rates rise nationally.
Research that was conducted between 1,500 people in Britain looking to buy a home shows that they have their sights firmly set on a property with an average value of £235,000. If the buyers have a combined average household income of £50,674, they believe that they will be able to afford an average mortgage payment of £780 a month. However, Experian said that based on a 10 per cent deposit which is one of the lowest deposits available, repayments on a property with a value of £235,000 would actually be nearer to £1,300 a month. This amount would rise to £1,440 if rates convert to 5.5% at the end of a stereotypical two year fixed deal.
Such high repayments mean that buyers could have just £100 left at the end of the month unless they drastically cut back on their spending. First time buyers who choose to purchase a £193,000 property could see their payments increase to just over £1000 a month, which is 60% more than an average salary could afford.
The managing director of Experian customer services said that as the economy improves, interest rates will rise and first time buyers could well be hit the hardest. He advises people thinking about buying a home to think of their financial situation now in order to ensure that they can afford their dream home.
Last month, an analysis conducted by the Telegraph newspaper showed that two out of three mortgage borrows are indeed vulnerable to rising interest rates. These borrowers will have variable interest rates that are more likely to rise in response to any increase put in place by the Bank of England. The analysis also demonstrated that average mortgage rates have become higher relative to Bank Rate during the period following the 2008 economic crisis. This adds to the danger that when the rates do increase, housing repayments will quickly climb in order to keep up.
As a result, the International Monetary Fund is urging Britain to take swift action to curb risky mortgage payments. If you need to speak to an independent financial advisor, call the Mortgage Express contact number to be given the details of some organisations who can help.