Based on research among 1,500 Britons looking to buy a home, The MMR Muddle: Underprepared and Out of Pocket shows homebuyers have their sights set on a property worth an average of £235,000.
With a combined household income of £50,674, the average homebuyers claim they can afford an average mortgage payment of £780 a month.
However, based on a 10% deposit, repayments on a £235,000 property would actually be nearer to £1,300 a month and potentially more depending on their credit history and the lenders policy rules.
The situation becomes even more problematic if, as is widely reported, the Bank of England moves to increase base interest rates in 2015.
Although people may be able to afford such a property at present, even modest interest rate rises could make meeting their monthly repayments difficult and leave little available cash at the end of the month for unforeseen living costs.
Mortgage payments could soar to £1,440, almost double what the average homebuyer claims they can afford, should variable rates convert to 5.5% at the end of a typical two-year fixed deal – a 1.5 point rise on current rates.
In fact 35% of buyers admit that they would find it hard to make ends meet if their mortgage became more expensive.
Peter Turner, managing director, Experian Consumer Services, said: “These findings show just how important it is to get your finances in the best shape possible in advance of a mortgage application.
“It’s not just a case of making sure you’re accepted, it’s a case of using your finances to land the best rate possible. Ensuring that your mortgage application gets the highest credit score possible can make a difference of hundreds of pounds a month, and thousands over the course of a mortgage’s lifetime.”
