The increasing price of mortgage products has led to falling house prices across the country.
The annual price of a home dropped by 3.8 per cent in July, weaker than any month since 2009 following the financial crisis.
Nationwide’s House Price Index revealed that the typical price of a house now stands at £260,828 – compared with £262,239 the previous month. It is also 4.5 per cent lower than a year ago.
It is anticipated by many that the Bank of England will put up interest rates yet again this week.
If those on Threadneedle Street do push the rate up by the anticipated 0.25 per cent – to 5.25 per cent – then rises in mortgage rates will follow.
It would be the 14th straight rise as the Bank tries to keep a lid on inflation which has been slowing, but is still far higher than it should be.
Robert Gardner, chief economist at Nationwide, said: “Housing affordability remains stretched for those looking to buy a home with a mortgage.”
He added: “While activity is likely to remain subdued in the near term, healthy rates of nominal income growth, together with modestly lower house prices, should help to improve housing affordability over time – especially if mortgage rates moderate once Bank Rate peaks.”
Mr Gardner said that a prospective first-time buyer earning the average wage and looking to buy a property with a 20 per cent deposit would see monthly mortgage payments take up 43 per cent of their take-home pay, on a a six per cent mortgage rate.
He said: “This is up from 32pc a year ago and well above the long-run average of 29pc.
“Moreover, deposit requirements continue to present a high hurdle – with a 10 per cent deposit equivalent to 55 per cent of gross annual average income.”
Mike Bradley, a senior broker with Home Owners Advice, said: “It might appear that with house prices coming down, property is becoming more affordable.
“However, the rise in mortgage rates mean this is not so. But in time it might be that homes are more obtainable if mortgage rates are reduced.
“Mortgage approvals are at an eight-month high thanks to wage increases powered by high employment rates.
“About 54,700 mortgages were approved in June – the highest level since October’s peak of 59,000 – according to the Bank of England.”