National Housing Federation (NHF) says first time buyers now need 10 times the deposit when compared to buying in the early 1980s.
The rise of 9.9% in the price of an average home over the last year to April is the highest since June 2010 and more than the 8.0% year on year to March.
House price rises were experienced across the whole of the UK according to the ONS with the capital showing the strongest growth. London prices are higher over the year by 18.7%, the highest since July 2007.
Excluding London, UK house prices were up by 6.3%. By comparison, household inflation is higher by only 1.5% which is concerning to the Bank of England.
One advantage of rising house prices for homeowners is remortgage buyers can now release capital for home improvements.
Bank of England will take action
Homeowners must prepare themselves for a rise in the cost of borrowing as interest rates have remained at an all time low of 0.5% since March 2009.
The Bank of England’s Financial Policy Committee (FPC) have been meeting to discuss the risk of the housing market and if they need to take action.
Governor of the Bank, Mark Carney, has said rates could rise sooner than expected in order to cool the housing market. Last week the chancellor, George Osborne, gave the FPC new powers to curb the rise in house prices.
Shift to fixed rate mortgages
As homebuyers anticipate a rise in interest rates, there has been a shift in the number of variable rate mortgages to fixed rate mortgages taken up over the year with the cost of a 5 year fixed rate rising from 3.85% a year ago to 4.25% today.
For first time buyers and home movers, to manage their mortgage costs they should consider a longer term fixed rate of 3 years or 5 years.
For older equity release mortgage buyers, fixed rates can typically be secure from interest rates of 5.9% upwards without any evidence of earnings which is important for borrowers with only retirement income.
As a result the cost of a 5 year fixed mortgage has increased from 3.85% a year ago to 4.25% today. For first time buyers, to manage their mortgage costs they should consider a longer term fixed rate mortgage of 3 years or 5 years.
Existing borrowers with variable rate mortgages also have the opportunity to switch to a fixed rate mortgage. This would be more expensive than the variable or discounted rates but will not increase for the term of the offer.
The low interest rates in the last five years have benefited homeowners. In the 90s house crash there were 75,000 repossessions in 1991 but in the financial crisis repossessions were only 50,000 in 2009 and only 29,000 in 2013.
Even if interest rates rise, Mark Carney has indicated the rise would be gradual.
What are your next steps?
Talk to our London City Mortgage advisers if you are an older homeowner releasing equity from your property, we can recommend the lifetime mortgage to access wealth for home or garden improvements and holidays.
At LCM our mortgage brokers can provide advice if you are a first time buyer, moving home, want to remortgage your existing home to a new cost effective mortgage deal or are a buy-to-let investor.
Start with a free mortgage quote or call us and we can take your details. Learn more by using the equity release calculator, property value tracker chart and mortgage monthly cost calculator.
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