Can We Afford Our Homes?

Following massive house price increases more of us are buying properties we can't afford, but perhaps we can do something about it.

A website for independent financial advisors is planning to host a discussion on the mortgage sector. It'll ask some good questions like: Is there a market for long-term fixed-rate loans? and Are there too many types of mortgage product in the market? (If they're wondering, I say 'Yes' and 'Yes'.)However, the most interesting question they're asking is: Can consumers afford to own their own homes? I'm not convinced that we can. The price comparison website, Moneysupermarket, says that average house prices have risen by 41% in four years. We're also being hit by massive moving costs, as this article explains. These rises coincide with a big increase in first-time buyers from 35% of borrowers last April to 47% this March.Over four years (the same four years in which house prices have risen 41%), interest-only mortgages have doubled. The appeal of these loans is that the monthly payments are cheaper, but there are two major downsides to consider.Firstly, as you're only paying interest, it means you're not paying off any of the debt. An interest-only loan of £150,000 will remain a loan of £150,000 even after a year of payments. Thus, you are more likely to suffer if house prices stall, or even drop, because it'll be harder to sell for a profit and you may even make a loss.But I don't want to stress this too much. There's always a risk that house prices will drop and it's up to you how much risk you want to take on. What bothers me more is my second point - the overall cost - which is often ignored in favour of keeping monthly payments down. With interest-only, you may pay less each month, but in the long-term you'll pay far more. Typically, if you delay switching to a repayment mortgage by five years, it costs you £12,000 more, according to Moneysupermarket.What can we, or should we, do about this?Firstly, you should consider whether you should even be buying now. Can we afford our homes? they ask. Those of us on interest-only mortgages aren't even paying for them, so perhaps the answer is no.If you look at the best repayment mortgages, you may find that you actually can afford to pay off the debt, rather than just the interest. In particular, there are some good fixed rate deals at present.To pay for part of your moving costs, consider using credit cards that offer 0% on purchases, then become a 'rate tart' and switch to another 0% card before the free credit expires.If you decide to get an interest-only mortgage it should be for the short-term, perhaps no more than two years. Then switch to a repayment mortgage.Put money aside to repay the debt at the end of the term, or to reduce the size of the mortgage when you switch to repayment.Find a best buy repayment mortgage. Get 0% on purchases via our Credit Card centre.