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The income required for first-time buyers to pay an average home mortgage has risen by more than 70% between 2020 and 2024. The increase is largely due to rising house prices and tighter lending conditions. Housing and Infrastructure Agency Monthly Report (Royal Navy).
The HMS report details how the loan repayment burden has changed compared to the average purchase price in January 2020 and July 2024. The report states that the payment burden for an average apartment 30-year indexed loan has risen from 177,000 ISK to 295,000 ISK. This is an increase of nearly 70%.
The repayment burden of unsecured loans is more than 2.5 times
The difference is even greater when unsecured loans are taken into account. The payment burden of an unindexed loan for the average apartment increased by more than 2.5 times during this period, from ISK 217,000 to ISK 564,000.
The report noted that with the central bank’s rules on first-time homebuyer repayments coming into effect in 2021, repayments on first-time homebuyers’ loans must be capped at 40 per cent of disposable income. Therefore, someone in this group who intends to buy an average apartment at an 85 per cent mortgage rate would have to have an income of $1.1 million to afford the instalments.
“The monthly income needed to process payments on an average apartment has therefore increased by more than 70% since the start of 2020, while the Office for National Statistics wage index has only (increased) by 43% from January 2020 to June 2024,” the HMS report said.
Family arguments could get more heated after fixed rates are released
Arrears rose last year, but there were few signs of widespread payment difficulties, the report said. Defaults remain small by historical standards.
“The payment burden will increase for many households in the coming months and year. When some fixed-rate home loan agreements expire, more households may experience payment difficulties,” the Housing and Infrastructure Agency report said.
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