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The average first-time buyer in the UK will fork out an annual £11,500 in mortgage payments by 2023, up from just under £8,000 today, as rising interest rates increase the cost of home ownership.

Five-figure annual mortgage payments for first-time buyers will become the norm over the next five years, adding £3,500 to current average costs across the UK and £5,300 in London, when changes in house prices and interest rates are taken into account.

The research by estate agent Savills used expectations about house prices, earnings growth and deposit sizes for median first-time buyers to make its calculations, but said the most important factor would be rising interest rates.

“The forecast increase partly reflects the fact that we expect the average first-time buyer mortgage to exceed £175,000 in five years. But it has more to do with the expectation that the average effective mortgage rate will go from 2.2 per cent to 4.2 per cent over the same period,” said Lucian Cook, Savills residential research director, who said the study assumed a 25-year mortgage term repaying capital and interest.

The outlook for different English regions pointed towards a “rebalancing” between London and the rest, Mr Cook said. In its November inflation report, the Bank of England noted that the slowing market in the capital had already “brought London house prices relative to income somewhat closer to other areas”, citing regulatory and tax changes, as well as lower net migration from the EU.

Savills predicts house prices will rise at a faster pace outside London over the next five years, with prices growing by a modest 4.5 per cent in the capital against 21 per cent in the Northwest.

While mortgage payments for first-time buyers will rise everywhere, they will climb faster in the Midlands and the North, where wage rises will lag behind the more rapid growth in house prices. In London, first-time buyers’ annual mortgage costs are expected to rise to £19,100, up from £13,800 today, while in the Northwest, payments will rise proportionately higher, from £6,400 to £9,500.

Mr Cook said: “It’s going to get a bit harder in the Northwest and it’s probably going to ease a little bit in London without that rampant house price growth we’ve had from 2005 to 2016.”

He cautioned, however, that the trend would still be a long way from closing the gap between the two. “Given where interest rates are going to sit and what we expect to happen to house prices over the next five years, first-time buyers are still going to face a big barrier to entry with housing deposits,” said Mr Cook, who used mortgage data from UK Finance and economic forecasts by Oxford Economics in its analysis.

Falling house prices in London, alongside rising wages, mean the average deposit needed by a first-time buyer there is likely to fall by around £12,000 by 2023, he said. But that would still leave it at an eye-watering £82,000 — a figure that far exceeds the annual household income of the average first-time buyer.

The research was published as figures from the Office for National Statistics reinforced the robust picture for the English regions. Average house prices rose by 6.1 per cent and 6.0 per cent respectively in the West and East Midlands in the year to September and by 3.3 per cent in the Northwest. In London, by contrast, they fell by 0.3 per cent over the year.

Copyright The Financial Times Limited 2019. All rights reserved.

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