It might surprise
many that, despite significant inflation over the past few years, buying a
house today is still more affordable as a percentage of take-home pay.
The average value
of a typical Northampton first-time buyer property has surged by 296.9% since
1989 (35 years ago), reaching £222,800 in 2024. So, the title of this article
sounds wrong.
Yet the headline
price one pays for your home is almost irrelevant. Indeed, it is what it costs
each month out of one's salary. You see, despite this increase in house prices,
the monthly mortgage payments that first-time buyers in Northampton need to
make today are significantly lower as a proportion of their take-home pay
compared to 1989.
According to data
from the Nationwide Building Society, today's first-time buyers in Northampton
spend 33.2% of their household take-home pay on mortgage payments, a
substantially lower amount than the 44.4% required in 1989. This is because wages
were lower, and the Bank of England's base rate
was 14.88%. This represents a 25.3% reduction in the financial burden of
monthly mortgage payments today for Northampton first-time buyers compared to
1989.
One might argue
that 1989 was long ago and irrelevant to today's economic climate. I would disagree.
However, a more recent comparison from 2007 reveals that first-time buyers in Northampton
had to allocate 39.3% of their household income to mortgage payments. This is
still 15.5% higher than today's figures, underscoring the improved property
affordability in Northampton over the past few decades.
So why has this
happened? Real incomes (after inflation) have risen, and interest rates are
much lower. That is true.
UK household incomes have grown in
real terms in the last 35 years by 25.02% (i.e., after inflation),
while interest rates are at 5.25%
Yet the improved affordability of housing in Northampton
for first-time buyers is influenced by several factors beyond lower interest
rates and increased household incomes. One significant aspect is the overall
change in the housing market dynamics, including government policies, the
availability of mortgages, and demographic shifts.
UK Government
Policies and Mortgage Availability
Government policies supporting first-time buyers,
such as Help to Buy schemes and favourable mortgage products, have made
homeownership more accessible. These policies often provide financial
assistance or guarantee parts of the mortgage, reducing the initial financial
barriers for first-time buyers. Moreover, the availability of competitive
mortgage products with lower interest rates and longer repayment terms (over 30
and 35 years) has eased the burden on first-time buyers.
Demographic
Shifts and Urban Development in Northampton
Demographic changes, including the growth of urban
areas and improved infrastructure, have also contributed to the housing
market's evolution. With its strategic location and improved transport links, Northampton
has become an attractive option for commuters and young families. This has
increased demand for housing, driving development projects that cater to the
needs of first-time buyers with affordable housing options.
Rent vs.
Buy in Northampton: Economic Considerations
As new rental prices continue to rise at an
alarming rate, the economic advantage of buying over renting becomes more
pronounced. Renting often involves annual rent increases, offering no long-term
financial security. In contrast, buying a home with a fixed-rate mortgage
provides predictability in monthly payments and the potential for property
value appreciation.
However, many people will counter that by saying
first-time buyers must find large deposits. The average first-time buyer
deposit in 2023 was an eye-watering £53,414. Remember, though, that this is just an average,
and 95% mortgages (meaning a 5% deposit would need to be found) have been
available for over 14 years and are comparatively easy to obtain with a decent
credit history! Of course, a
large deposit (25%) will get to a lower interest rate (at the time of
writing, the best 95% mortgage/5% deposit was at 5.2%, versus a 75%
mortgage/25% deposit mortgage at 4.24%), yet if one extends the number of
years one has for the mortgage, then the monthly payments will come down.
(Remember to take advice from someone qualified to advise you on this).
One advantage is that homeowners build equity,
which can be a significant financial asset over time, whereas renters do not
gain any ownership benefits despite continuous payments.
If you don't buy a home, once you
retire and have no significant assets, you should receive support from the
government for your rental payments. However, as your family will have probably
flown the nest by the time you retire, you will only qualify for support for a
smaller home (meaning you will either need to move home when you reach
retirement or supplement the rent from personal funds).
Final
Thoughts
The Northampton property market has seen a roller
coaster shift in affordability for first-time buyers over the past 35 years.
While property prices have increased substantially, the proportion of household
income required for mortgage payments has decreased due to lower interest
rates, real-term income growth, and supportive government policies. This
improved affordability, combined with the rising cost of rent, makes buying a
more attractive and financially sound option for many.
The economic landscape has changed significantly,
favouring first-time buyers in ways that were impossible in 1989 or even 2007.
As the market continues to evolve, first-time buyers in Northampton can take
advantage of the current conditions to secure their financial future through
homeownership. The reduced financial burden and the potential for long-term
gains make now a suitable time for those considering stepping onto the property
ladder.
