Property Panic: Britons Rushed Into Buying Unaffordable Homes

6th September 2014

- 3 million would struggle to pay their mortgage if the base rate rose by 3%.

- One in four Londoners worry they bought their property at the peak of its value.

- A quarter (23%) of all homeowners felt forced onto the ladder because of rising prices.

Almost 2 million homeowners wouldn't be able to afford mortgage repayments following a base rate rise of just 2%, according to research from discretionary investment manager Nutmeg.* This rises to a huge 3 million if the base rate were to rise by just 3%. Over a third (33%) of homeowners wouldn't be able to afford their mortgage should rates rise to 5.5%, a rate last seen as recently as 2008.

The research, which surveyed over 4,000 UK adults and investigated attitudes to property ownership, also revealed that many homeowners felt rushed into buying a UK property, with one in eight homeowners (12%) concerned that they bought their property at the peak of its value. This figure rises to 27% of Londoners. Many felt rushed into buying their property, with almost a quarter (23%) of all homeowners feeling that they had to get on the property ladder before prices rose out of their reach. A further one in eight (12%) bought following pressure from friends and family, and a further 12% felt pressured by society to become a homeowner.

Over the past two years, property prices have increased in many areas across the country. This is perhaps why over two thirds (70%) expect to make money on their property, with those in London (78%) and the South East (79%) - where the biggest recent house price rises have been - most hopeful. Those based in Northern Ireland are least optimistic, but the majority (59%) still expect to make some gains. Reflecting the view that their generation will not be so fortunate to benefit from rising property prices, those aged 18-34 are least hopeful: just under a quarter (24%) expects to lose money on their property.

Further to this, 59% expect that their property will give better long-term gains than other investments, such as a portfolio of stocks and shares.

Nick Hungerford, CEO and founder of Nutmeg comments: "It's worrying to see that so many think they'd struggle paying the mortgage should the base rate rise by as little as 2%. What's also clear is that the understanding of how interest rates affect payments is incredibly low. Simply put, a rise in rates from 1% to 2% is a hundred percent increase, which means a doubling of payment. For example if you were paying £750 per month your new payments would be £1,500.

"The vast increase in house prices in nearly every area of the country has led to millions being drawn onto the property ladder before they were ready, for fear that it might be now or never. What's essential is that people don't take the decision to buy property lightly and consider the impact it will have on their finances should interest rates rise in the future.

“If you're considering property as an investment, it's important to ensure that this forms part of a diversified portfolio so you spread your risk."