According to a recent report by the Financial Conduct Authority (FCA), young homeowners are the most likely to face mortgage strain. The report highlights the challenges faced by homeowners under the age of 40, who are struggling to keep up with their mortgage payments due to a combination of rising house prices and stagnant wage growth.
The FCA report reveals that over 800,000 households in the UK are currently experiencing mortgage strain, which is defined as spending more than 20% of their income on mortgage payments. Of these households, almost half (48%) are under the age of 40, with many struggling to make ends meet due to the high cost of living and the ongoing impact of the pandemic on their finances.
One of the key factors contributing to mortgage strain among young homeowners is the rapid rise in house prices in recent years. According to the latest data from the Office for National Statistics (ONS), the average UK house price reached £267,000 in December 2021, up from £251,000 in the same month the previous year. This means that first-time buyers and young homeowners are having to take on larger mortgages than ever before, with many struggling to keep up with the repayments.
At the same time, wage growth among young people has remained stagnant, putting additional pressure on their finances. The FCA report shows that the average income for homeowners under the age of 40 is £38,000 per year, which is significantly lower than the average income for homeowners aged 40 and over, who earn around £55,000 per year. This means that young homeowners are having to spend a larger proportion of their income on mortgage payments, leaving them with less money to cover other essential living costs.
Another factor contributing to mortgage strain among young homeowners is the ongoing impact of the pandemic on their finances. Many young people have been hit hard by the economic fallout from Covid-19, with job losses and reduced working hours leading to a drop in income. At the same time, many young people have been unable to save money during the pandemic, with rising living costs and the need to support family members putting additional pressure on their finances.
The FCA report also highlights the fact that young homeowners are more likely to be on variable rate mortgages, which means that their monthly repayments can go up or down depending on changes in interest rates. This can make it difficult for young homeowners to plan their finances, as they may not be able to predict how much they will need to pay each month. In addition, young homeowners are also more likely to have high loan-to-value (LTV) mortgages, which means that they have borrowed a large proportion of the value of their property. This can make it difficult for young homeowners to switch to a cheaper mortgage deal, as they may not have enough equity in their property to qualify for a better rate.
The FCA report concludes that there is a need for greater support for young homeowners who are experiencing mortgage strain. This could include measures such as mortgage payment holidays, mortgage term extensions, or support with debt management. The report also highlights the need for greater affordability checks when lending to young homeowners, to ensure that they are not taking on mortgages that they cannot afford to repay.
In conclusion, the FCA report highlights the challenges faced by young homeowners in the UK, who are struggling to keep up with their mortgage payments due to a combination of rising house prices, stagnant wage growth, and the ongoing impact of the pandemic on their finances. The report calls for greater support for young homeowners, as well as increased affordability checks when lending to this demographic, in order to help prevent mortgage strain and ensure that young people are not priced out of the property market.
