Mortgage payments costing borrowers two fifths of monthly salary

The data from mortgage network Stonebridge revealed that reveals that mortgage payments accounted for 40.1% of the average borrower’s salary in September.

Stonebridge said this meant mortgage affordability was at its lowest level in nearly a year, and while affordability improved slightly in September (from 40.6% in August), mortgage repayments continue to take up a far larger proportion of borrowers’ salaries than they have done historically.

For example, in November 2021, the month before the Bank of England (BoE) started hiking rates, mortgage payments accounted for just 32.1% of the average borrower’s salary – 8.5 percentage points less than today.

The long-running average is for borrowers to pay 35.9% of their salary towards their mortgage.

Stonebridge’s Mortgage Affordability Index uses official wage and mortgage rate statistics and combines it with its own loan data to determine the relative affordability of mortgage payments in proportion to earnings.

Stonebridge said rising house prices were effectively cancelling out any benefits gained from the gradual reduction in mortgage rates witnessed over the past few months.

The average rate on new mortgages fell from 4.86% to 4.78% between August and September but because of rising house prices the average loan size rose to a 27-month high of £198,383 the same month.

Rob Clifford, chief executive at Stonebridge, said the data made it clear most borrowers had not seen the benefits from the Bank of England’s rate cutting.

“With house prices still rising and mortgage rates elevated, homeowners are now spending more than two-fifths of their salary on mortgage payments – well above the historical average. This highlights that the cost-of-living squeeze is far from over for millions of households.”

“The good news is that we’re likely past the worst, with the Bank of England likely to continue cutting interest rates throughout 2025. As we go into 2025, we expect that to filter through to borrowers in the form of lower mortgage rates, which will provide relief for millions of households.

“With more than 1.8 million fixed rates due to end in 2025, now is the time for brokers to re-engage with their clients, many of whom will be concerned about how much they are going to have to pay going forward.”

Stonebridge’s Mortgage Affordability Index:

Month
Mortgage repayments as % of salary

September 2023
38.7%

October 2023
41.9%

November 2023
41.8%

December 2023
42.4%

January 2024
41.9%

February 2024
39.7%

March 2024
38.1%

April 2024
38.8%

May 2024
38.8%

June 2024
39.6%

July 2024
40.2%

August 2024
40.6%

September 2024
40.1%

Long-running average
35.9%