Mortgage repayments climb to nearly a quarter of the average household’s earnings

According to the latest research by specialist property lending experts, Octane Capital, the average household is now paying 22% of its monthly income on the cost of repaying their mortgage, up from 16% since the start of this year alone.

Octane Capital analysed the current cost of repaying a mortgage across each area of the British property market, before comparing this to the average annual gross earnings of a household in each area based on two incomes per household, to see just how much of our income a mortgage now requires, as well as how this cost has changed since the start of the year.

With the average Brit earning £2,635 per month, the average British household benefitting from two incomes is taking home a gross monthly income of £5,270.

Based on borrowing at the latest mortgage rates and with 75% loan to value mortgage on the current average house price of £295,747, the average household is forking out £1,139 per month when repaying their mortgage. This accounts for 22% of a household’s gross monthly income and what’s more, this proportion of income required has increased by 6% so far in 2022, up from 16% since January.

London is predictably the least affordable region when it comes to mortgage market affordability. The average household across the capital is currently spending 30% of their gross monthly to cover their monthly mortgage repayments, followed by the South West (27%) and South East (26%).

These three regions, along with the East of England, have also seen the biggest squeeze on household mortgage affordability since the start of the year, with the proportion of income required to cover the average monthly mortgage repayment increasing by 7%.

When breaking down the capital by borough, Camden is home to the lowest level of mortgage affordability in Britain, where 43% of the average monthly household income is required to cover the cost of a mortgage.

Kensington and Chelsea (42%) and Haringey (40%) also rank amongst the top three least affordable areas, followed by Hertsmere, Chichester and Cotswold (39%), which also rank as the least affordable areas outside of London.

Cotswold has also seen the biggest squeeze in Britain, with the average household now spending 10% more of their earnings on their monthly mortgage repayments compared to January of this year, as has Epsom and Ewell and Chichester.

CEO of Octane Capital, Jonathan Samuels, commented: “The current outlook for the nation’s homebuyers and owners is becoming increasingly difficult and it really demonstrates just how high the cost of homeownership has climbed when nearly a quarter of household income is swallowed up by mortgage repayments.

“What’s more this proportion of income required to cover our mortgage repayments has been climbing steadily since the start of the year and is likely to continue doing so, as mortgage rates are predicted to increase to as high as six per cent.

“This means that those currently looking to buy, or on a variable rate mortgage, will be squeezed even tighter at a time when our finances are stretched beyond breaking due to the cost of living crisis.”