Mortgage affordability at 10-year high

Buying a home hasn't been this affordable in a decade.

If you’re planning to buy in the immediate future, a new survey should provide some optimism, as it has suggested that mortgages have not been so affordable for a whopping ten years!

You can’t afford not to!

According to new research from Barclays, mortgage affordability is now at its best level for a decade.

The lender looked at the accounts of one million customers, and found that on average borrowers are currently shelling out around 15.4% of their take home pay to cover their monthly mortgage payment.

In those terms, mortgages begin to look mighty affordable. Let’s take an example - if your monthly salary after tax is £1,500, that means you are only shelling out £231 a month on your mortgage. As Barclays points out, given that average house prices have jumped 68% and salaries have risen just 37%, it’s pretty remarkable that mortgages are at such an affordable level.

It’s not as easy as it looks

Of course, a big part of this is down to bank base rate. All of the borrowers on variable rates have seen their monthly payments plummet, dramatically bringing down the average mortgage payment.

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But such a low base rate cannot last – indeed the signs are that it will have to start increasing soon, as we explained in Base rate set to rise by May. And when it does, it will start to sting the UK’s borrowers, a fair proportion of whom are already finding things a touch tight.

Barclays’ research found that 28% of borrowers were currently stretched, albeit with a little room for manoeuvre when rates start to rise, while 16% reported higher mortgage bills than the previous year. That’s more than a third of borrowers whose financial position is on the precarious side of things.

And that’s the point really – just because you’re only spending 15% of you salary on your mortgage doesn’t mean that you can afford to own your home. It’s more a question of what you’re doing with the remaining 85%. If you’re up to the eyeballs in credit card debts, then that 15% probably still feels pretty punishing.

Keeping a mortgage affordable

That’s not to say that buying is a bad idea. As we explain in Now is the time to buy property, there’s never really a bad time to buy, so long as you are buying for the right reasons.

And there are a few things that you can do before you buy to ensure that you do not overstretch yourself.

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The first thing is not to rush into buying. As the tables below demonstrate, mortgages become far more expensive if you don’t have much in the way of a deposit. So take your time, get into a good savings habit, and get together a decent deposit, rather than simply the minimum you need in order to get a mortgage.

Of course that’s easier said than done – recent figures from the Council of Mortgage Lenders found that the average deposit required by first-time buyers is now the equivalent of a year’s salary for the average Brit. However, that just shows the importance of saving early and often if you plan to buy a home. The best way to build up a deposit is by making full use of your ISA allowance, as your savings are completely tax-free. Check out Earn 5% on your savings, tax-free for more.

However, it’s also important to avoid over-stretching yourself when working out how much to borrow. Just because you have £800 left over at the end of the month which you can devote towards the mortgage does not mean you should do so. What happens if the cost of living continues to rise, or if mortgage rates rise so that when you come to remortgage you face a big jump in payments? Give yourself some leeway, and overpay where you can, as this helps you build up your equity stake and pay off your mortgage earlier. Have a read of Pay off your your current mortgage deal in 10 years!

Working out what you can afford

When I sorted out my first mortgage, I remember just how useful my mortgage broker was. We sat down and went through all the monthly incomings and outgoings for my wife and I, to look at exactly how much I could afford to be paying every month towards the mortgage. It was a really important exercise, and doing it with a professional broker rather than on my own at home forced me to be completely honest, rather than tweak the figures here and there.

Of course, we are all more than capable of doing a few budgeting sums ourselves, but I would certainly recommend that if you’re buying for the first time, it’s worth going through it with a broker, as they’ll not only see how much you can afford, but also which lenders are most likely to look kindly on your application. You can pick the brains of our fee-free mortgage team via email, over the phone or even on instant messenger – just head over to our mortgage centre.

Below I’ve put together some of the best mortgages in the market today, focusing on those which don’t charge monster fees – after all, if you want to keep your mortgage affordable, the last thing you need to do is chuck another couple of thousand pounds on top of your advance!

15 tremendous fixed rates

*Remortgage only

15 fabulous variable rates

More: Get a market-leading credit card Forget fixes and turn to trackers | Property market faces paralysis 

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At lovemoney.com, you can research all the best deals yourself using our online mortgage service, or speak directly to a whole-of-market, fee-free lovemoney.com broker. Call 0800 804 8045 or email mortgages@lovemoney.com for more help.

This article aims to give information, not advice. Always do your own research and/or seek out advice from an FSA-regulated broker (such as one of our brokers here at lovemoney.com), before acting on anything contained in this article. 

Finally, we tend to only give the initial rate of a deal in our articles, but any deal which lasts for a shorter period than your mortgage term may revert to the lender's standard variable rate or a tracker rate when the deal ends. Before you take out a deal, you should always try to find out from your lender what its standard variable rate is and how it will be determined in the future. Make sure you take all this information into account when comparing different deals.

Your home or property may be repossessed if you do not keep up repayments on your mortgage.