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Mortgage payments rise to two-fifths of first-time buyers’ income – Hilltop Credit Partners

  • 10/08/2023
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Mortgage payments rise to two-fifths of first-time buyers’ income – Hilltop Credit Partners
Rising interest rates mean that the average first-time buyer is spending 39 per cent of their take home pay on mortgage payments, up from 30 per cent at the start of last year, a report from a credit investment manager has found.

According to the Hilltop Credit Partners housing market outlook for Q2, this has put a dampener on transactions and prices this year. 

Although buyer demand is three per cent higher than it was in 2019, as noted by Rightmove, monthly transaction volumes fell from 105,000 in June last year to 85,000 this year. 

Hilltop Credit Partners said there would be a “bounce in reported transaction volumes” in Q3, as indicated by a rise in mortgage approvals and sales agreed in Q2. However, it predicted the effect of increased mortgage rates on transaction levels would become apparent again in Q4. 

It noted that house prices were around 4.5 per cent down compared to their peak, but were still 20 per cent higher than pre-Covid levels. Hilltop Credit Partners predicted that prices could fall by three per cent in Q3. 


High rates adding to rental demand 

Hilltop Credit Partners said despite the rise in rental prices, renting was now more affordable as it accounted for 32 per cent of the average income. 

It noted that rental demand was strong against a lack of available rental properties. It also said the build-to-rent delivery of 88,000 units and 54,000 under construction only accounted for three per cent of the total private rental sector stock so was “unlikely to make a meaningful dent in solving the acute rental shortage facing the country”. 

The firm predicted that along with the “hostile policies” towards landlords, there would be an “above trend” growth in rent over the next three to five years which would create an opportunity for developers to provide modern, affordable options. 

The delivery of houses for purchase is slowing down too and Hilltop Credit Partners said that anecdotally, new brick deliveries were around 20 per cent down on normal levels when compared to last year. 

It also pointed to the UK Construction MPI in June, which was below 50 for the first time in five months, suggesting a reduction in activity. 

Housing starts have declined by a quarter on last year’s peak, while EPC data suggests that real-time housing delivery is “running at its lowest level since 2017”. 

It also referred to recent trading updates from major housebuilders which mentioned a decline in housing delivery going forward and a 30 per cent drop by 2024. 

Hilltop Credit Partners said this could result in the number of new houses being built falling below 200,000 units for the first time in almost 10 years. 


BoE ‘behind the curve’ on the base rate 

Hilltop Credit Partners said improved wage and inflation data caused the markets to revise their expectations for the base rate peaking at 5.75 per cent instead of 6.5 per cent. 

It said in the near term, these expectations could fall further, adding that the Bank of England (BoE) could realise it acted too late to tackle inflation. 

Hilltop Credit Partners said the central bank was “behind the curve again” and “hiking too aggressively” as evidenced by the slowdown in headline inflation and wage data, which showed signs of the increases taking effect. 

It noted that five-year swap rates had fallen from a peak of 5.4 per cent in July to 4.7 per cent and expected lenders to reduce mortgage rates in light of this. 

The firm said: “Sharp drops in raw material prices, a slackening labour market, and the lagged effect of 13 rate hikes provide hope that the BoE is confronted with a more benign inflation backdrop in H2 2023, lowering the chances they will ‘over-tighten’ in the short term and potentially even providing cover for a ‘pause’ over the coming months.”

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