Borrowers in urban areas spend on average 38% of their monthly income on their mortgage payments, the study by Nottingham Trent University has revealed, compared with 26% for those in rural areas.
It means, researchers said, living in urban areas is more likely to lead to debt. It also increases the likelihood of homeowners being on variable-rate mortgages, which face a more immediate impact from interest rate hikes.
The data – taken from an analysis of 30,000 UK households over an eight-year period – also showed 38% of borrowers in urban areas had fixed-rate mortgages, compared to 62% of those in rural locations.
Fixed-rate mortgages usually yield lower interest rates for borrowers than variable, 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.
Dr Alla Koblyakova, an expert in mortgage finance from Nottingham Trent University, who led the study, explained the research showed there was an disparity in the mortgage market with certain borrowers taking on more risk than others according to their location.
She said policymakers may need to consider this when formulating mortgage policy decisions.
“The HomeOwners Alliance recommends that no more than 35% of post-tax income should go on mortgage payments,” Dr Koblyakova said. “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.”
Negative impact on young people
Meanwhile, the study also found an increase in new-build homes had led to problems amongst would-be borrowers with affordability. Researchers said this was 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 has taken into account information from 50,000 individuals.
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.”
