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Borrowers in urban areas struggle the most to meet their mortgage, study shows

Mortgage holders living in cities and other urban areas are more likely to struggle with their monthly repayments than those residing in rural locations, a new study by Nottingham Trent University has found.


Borrowers in urban areas struggle the most to meet their mortgage, study shows

Mortgage holders living in cities and other urban areas are more likely to struggle with their monthly repayments than those residing in rural locations, a new study has found.

Research by Nottingham Trent University has revealed that borrowers in urban areas spend on average 38 per cent of their monthly income on their mortgage payments.

This contrasts to 26 per cent for people in rural areas, leaving them with the potential for more disposal income.

The data – taken from an analysis of 30,000 UK households over an eight-year period – also show that only 38 per cent of borrowers in urban areas have fixed-rate mortgages, compared to 62 per cent of those in rural locations.

Fixed-rate mortgages usually yield lower interest rates for borrowers, making mortgage payments more affordable. But only those with the highest amounts of equity in their homes can access the lowest fixed-rate mortgages on the market.

The study also found that average loan-to-value ratios (LTV) in urban areas is 84 per cent, by contrast to 68 per cent in rural areas, which shows that people in rural areas on average have twice as much equity in their homes as their city-dwelling counterparts.

Dr Alla Koblyakova, an expert in mortgage finance from Nottingham Trent University, who led the study, said: “This research shows that there is a clear asymmetric distribution of risk within the UK mortgage market, which policymakers may need to consider when formulating mortgage policy decisions.

An urban housing area

“The HomeOwners Alliance recommends that no more than 35 per cent of post-tax income should go on mortgage payments – so it is concerning that the average rate for UK households in urban areas is already above this, while interest rates remain at historically low levels.

“These numbers show us that living in urban areas leads to a greater indebtedness and increases the likelihood of homeowners being on riskier variable-rate mortgages, which are subject to interest rate hikes.

“By contrast, people residing in more rural locations are more likely to be on lower interest fixed-rate deals which do not fluctuate with changes to the Bank of England base rate.

“So, any changes to monetary policy decisions could have a disproportionate impact on people living in cities and other urban areas, when compared to those in rural locations.”

The study also found that an increase in new-build homes resulted in the housing market experiencing worsening mortgage affordability, possibly due to higher prices for newly built homes and a relaxation of lending conditions, leading to an increase in house prices overall.

The data – which comprise 50,000 individuals – was taken from the Understanding Society Survey and the findings will be presented at the American Real Estate and Urban Economics Conference on 5 August 2022.

Dr Koblyakova added: “This research shows that variations in people’s incomes, house prices and mortgage lending conditions may have created different patterns in the UK mortgage landscape.

“A major concern is the increasing deviation between housing expenses and income, as this has a negative impact on young people and low-to-middle income household groups.

“Future income shocks - such as increases to the Bank of England base rate - will have a diverse impact on households and their ability to repay their mortgage, leading to an asymmetric response to monetary policy changes nationally.”

  • Notes for editors

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    Nottingham Trent University (NTU) received the Queens Anniversary Prize for Higher and Further Education in 2021 for cultural heritage science research. It is the second time that NTU has been bestowed the honour of receiving a Queen’s Anniversary Prize for its research, the first being in 2015 for leading-edge research on the safety and security of global citizens.

    The Research Excellence Framework (2021) classed 83% of NTU’s research activity as either world-leading or internationally excellent. 86% of NTU’s research impact was assessed to be either world-leading or internationally excellent.

    NTU was ranked second best university in the UK in the Uni Compare Top 100 rankings (2021/2022). It was awarded Outstanding Support for Students 2020 (Times Higher Education Awards), University of the Year 2019 (Guardian University Awards, UK Social Mobility Awards), Modern University of the Year 2018 (Times and Sunday Times Good University Guide) and University of the Year 2017 (Times Higher Education Awards).

    NTU is the 5th largest UK institution by student numbers, with nearly 39,000 students and more than 4,400 staff located across five campuses. It has an international student population of 7,000 and an NTU community representing over 160 countries.

    Since 2000, NTU has invested £570 million in tools, technology, buildings and facilities.

    NTU is in the UK’s top 10 for number of applications and ranked first for accepted offers (2021 UCAS UG acceptance data) It is also among the UK’s top five recruiters of students from disadvantaged backgrounds and was the first UK university to sign the Social Mobility Pledge.

    75% of NTU students go on to graduate-level employment or graduate-entry education / training within fifteen months of graduating (Guardian University Guide 2021).

    NTU is ranked 4th most sustainable university in the world and 1st in the UK for sustainability-themed Education and Research in the 2021 UI Green Metric University World Rankings (out of more than 900 participating universities).

Published on 3 August 2022
  • Category: Press office; Research; School of Architecture, Design and the Built Environment