Affordability, of course, is also at the heart of the FCA’s changes to mortgage regulation. As we are all well aware, the FCA is strengthening the focus on verified and sustainable income and on the stress testing of mortgage rates to reflect potential future rate rises.
Whilst the concept of affordability is generally understood, the practical implications are much more complex.
Spending patterns and priorities vary and the assessment is not just designed to be an assessment of a specific point in time, but incorporate a requirement to consider reasonably foreseeable future changes, and to include an element of prudence for factors such as future increases in interest rates.
Whilst mortgage payments are a high priority, periods of cost inflation above wage inflation will impact spending choices. Furthermore, after many years with mortgage rates trending downwards, many households will have shaped their spending patterns around this current norm.
Mortgage affordability is impacted by average wages, average loan size (house prices) and average mortgage rate. It has been improving for some time, however house price increases and rising base rates (or predicted rises in base rates) will reverse the direction of the graph, unless these are offset by wage increases, aligned to lower unemployment and a more buoyant economy.
The complex tasks of managing these factors as part of the wider economy fall to the Bank of England and its committees. Adding to that the specific task of scrutinising the Help to Buy scheme, it is clear they will be paying even closer attention to the market.
Andrew Baddeley-Chappell is head of mortgage strategy and policy at Nationwide