Homeowners are facing spending the highest percentage of their income on their mortgage since 1990 the interest rate on a typical two-year fixed mortgage rose above six percent for the first time in 14 years.
People face a mortgage burden, or the proportion of income spent on mortgage repayments, of around 27 per cent, said Neal Hudson, UK housing market analyst and commentator for BuiltPlace in his analysis of ONS data.
This is caused by the ‘severe’ impact of the six per cent rate, Mr Hudson told MailOnline, and would be the highest percentage since February 1990, when mortgage rates were 15.4 per cent.
Despite the fact that mortgage rates were higher then than they are now, ‘we borrow much more now relative to our income’.
“As we borrow more, a lower mortgage rate now has a bigger impact on your affordability,” Mr Hudson added. ‘Double digits then is more or less equal to the six percent now.’
The average mortgage is currently 3.5 times income compared to 1990 when people borrowed around 2.3 times their income.
In 1990, the mortgage burden was around 30 per cent, before the biggest housing crash in modern times hit.
Until June this year, the mortgage burden was around 18 per cent – but that has since risen to 27 per cent, analysis by Mr Hudson revealed.
“If you were looking at a reasonably affordable mortgage at the beginning of the year, it’s massively unaffordable now,” he added.
Across all deposit sizes, a typical two-year fix stood at 6.07 percent on Wednesday, down from 5.97 percent on Tuesday, Moneyfacts.co.uk said.
In December last year, the average two-year fix was 2.34 per cent.
Based on someone repaying a £200,000 mortgage over 25 years, their average monthly payments at that rate could have been £881.20, calculated from Moneyfacts.
But based on current average prices, they could face paying £1,297.17 a month – a difference of almost £416 a month or nearly £5,000 a year.
A typical two-year fix stood at 6.07 percent on Wednesday, down from 5.97 percent on Tuesday, Moneyfacts.co.uk said (stock image)
A Moneyfacts spokeswoman told MailOnline today: ‘Borrowers may well be worried about the rise in fixed mortgage rates, but it is important that they seek advice to assess the offers available to them right now.
The drop in product availability may be worrying, but many lenders have been vocal in stressing that their hikes are temporary amid the interest rate uncertainty.
“Longer fixation may appear more appealing, especially as both the average two-year and five-year fixed interest rates rise to levels not seen in over a decade. Consumers need to carefully consider whether now is the right time to buy a home or wait and see how things change in the coming weeks.’
Wednesday’s rise came on the same day Prime Minister Liz Truss told the Conservative Party conference that the government was pursuing ‘difficult but necessary’ decisions.
The figures also emerged as the chancellor was due to meet with UK banks and building societies amid turmoil in the mortgage sector sparked by chaos in the mini-budget market.
Sir Keir Starmer said Liz Truss is the ‘destroyer of growth’ as Lisa Nandy, shadow secretary for the level up, said today that the average fixed rate mortgage holder will pay around £500 extra a year because of rising rates.
She told the BBC’s Today programme: ‘The really rapid acceleration in interest rate expectations immediately after the mini budget was announced is what has caused this crisis for many families around this country.
“We estimate, based on figures from the Bank of England, that the average home payer leaving a fixed rate mortgage in the next year, of which there are 1.8 million, will pay an average of £500 more on their mortgage bills as a direct consequence of this government’s decision to crash the economy.’
She added that although this is a global problem, the government’s mini-budget added fuel to the fire.
Sir Keir Starmer renewed calls for Liz Truss to reverse her ‘kamikaze’ budget as he warned families of ‘conspicuous’ mortgage increases.
Analysis by the Labor Party suggests that the average UK buyer coming off a two-year fixed mortgage could see a monthly increase of £498 if interest rates hit six per cent.
Labor has developed estimates based on the assumption that a homeowner has a 20-year term and that they pay an interest rate of five or six per cent when their two-year fix ends in the third quarter of 2022.
Those in London would be worst hit, with Labour’s estimates putting the monthly rise at between £689 and £915, while the party suggests home owners in the North East would see an expected rise of between £247 to £327.
There is an expectation that the Bank of England may step in with another rate hike in the coming weeks, following Chancellor Kwasi Kwarteng’s mini-budget last month, to further calm markets.
Such a move would only add further pressure to homeowners and those trying to buy a house.
Sir Keir said: ‘These eye-popping mortgage increases will cause sleepless nights for homeowners across the country – and the Tory Government is entirely to blame.
Sir Keir Starmer renewed calls for Liz Truss to reverse her ‘kamikaze’ budget as he warned families of ‘eye-popping’ mortgage hikes
‘Liz Truss and Kwasi Kwarteng crashed the economy with their attempt to give huge, unfunded tax breaks to those who need it least.
‘The humiliating U-turn they were forced into came too late – the damage was done. Now we are all suffering the consequences. This was a crisis made in Downing Street but paid for by working people.
‘The Prime Minister must reverse her kamikaze budget, including her totally unfunded £17bn corporation tax for the biggest companies. The burden of the Tories’ fantasy economy should not fall on working people.’
Kwasi Kwarteng will sit down with senior executives from high street lenders and the biggest challenger banks ahead of his upcoming plans to deregulate the financial sector.
But it is happening amid increasing problems on the lending market, with a number of banks withdrawing mortgage credit agreements in the last week and raising mortgage interest rates.
Swap rates, on which mortgage pricing is based, have risen to unprecedented levels in response to current economic conditions and amid further predicted rises in the Bank of England’s base rate, which currently stands at 2.25pc.
HSBC, Santander and Virgin Money are among the lending giants that had withdrawn products from the market for new borrowers since the government unveiled its mini budget.
Kwasi Kwarteng will sit down with senior executives from high street lenders and the biggest challenger banks ahead of his upcoming plans to deregulate the financial sector
Labor leader Sir Keir Starmer has said Liz Truss is the ‘destroyer of growth’.
However, mortgage choice has gradually improved this week, with 2,371 products available on Wednesday, up from 2,358 on Tuesday.
The chancellor is likely to question bank chiefs about their plans to calm the market and prevent further mortgage deals being pulled.
He is also due to discuss elements of his growth plan, which aims to stimulate economic growth and improve Britain’s competitiveness by reducing ‘burdensome’ regulations and taxes on businesses.
It is the latest in a series of meetings Mr Kwarteng has arranged with the banking giants since stepping into the ministerial role.
In early September, he held an hour-long meeting with city leaders to warn them of the government’s plans to increase short-term borrowing to finance the energy aid package.
At the time he said he was ‘committed to taking decisive action to help the British people now as he pursues an unabashedly pro-growth agenda’.
The chancellor also called in top investment banks, including JP Morgan, Citigroup and Morgan Stanley, to prepare them for his deregulation plans, known as Big Bang 2.0.
The Ministry of Finance will provide an update on Mr Kwarteng’s message to bank chiefs after Thursday’s meeting.
Meanwhile, Labor leader Sir Keir Starmer has said Liz Truss is the ‘destroyer of growth’.
He spoke to BBC Radio Sheffield during a series of regional broadcast interviews.
Asked about Liz Truss’s comments about Labor being anti-growth and asked about the suggestion of being the ‘enemies of growth’, Sir Keir said: ‘For heaven’s sake. Enemies of growth?
‘She has just passed a kamikaze mini-budget which has lost control of the economy, is putting hundreds of pounds on people’s mortgage bills, it is the absolute opposite of a plan for growth.
“She is… not only against growth, she is the destroyer of growth.”
A government spokesman said: ‘There are a number of factors affecting mortgages and interest rates, which have risen internationally in response to global trends, including Putin’s illegal invasion of Ukraine.
‘The Government is doing what it can to support people with rising costs – our Energy Price Guarantee will save the typical household around £1,000 a year and we provide payments of £1,200 to the eight million most vulnerable families.
“This support complements the Chancellor’s Growth Plan, which accelerated the cut in basic income tax and reversed the rise in National Insurance, putting hundreds of pounds back into the pockets of working people on average.”