UK rents takes up biggest share of pay for a decade, but food inflation pressures ease – business live

First-time buyers are being hit by a drought in mortgages, as lenders pull back from offering home loans for those with small deposits.

The number of products for borrowers who need to borrow 95% of the value of their home has dropped by over 40% over the past year, the Financial Times reports.

They explain:

According to data provider Moneyfacts, there were 199 products on offer over the weekend for would-be buyers looking to borrow up to 95 per cent of the value of the property, down from 347 at the start of June 2022.

The average interest rate on a two-year fixed 95 per cent loan-to-value mortgage jumped by more than 3 percentage points to 6.49 per cent over the same period, while for five-year products it rose more than 2 percentage points to 5.8 per cent.

“The constant rate changes and ongoing market uncertainty is causing havoc,” said Aaron Strutt, director at Trinity Financial. “First-time buyers are struggling to access mortgages, especially if they have smaller deposits.”

A glimmer of good news – the input production costs of UK food and drink manufacturers have fallen for the first time since April 2016.

This provides optimism that future food price inflation will ease, reports Lloyds Bank, athough they fear it will be “some time” before this feeds through “if at all” to on-the-shelf food prices.

Food and drink producers benefited from a drop in commodity prices last month, with the prices of vegetable oils, cereals and dairy products falling on the global markets.

The cost of shipping, and energy, both eased in May too, helping to reduce cost pressures.

But, Lloyds Bank’s UK Sector Tracker found that salary inflation is the ‘stickiest’ element pushing up prices.

Annabel Finlay, managing director for Food, Drink and Leisure at Lloyds Bank Commercial Banking, explains:

“This drop breaks sustained rises in production costs for food and drink manufacturers, which have been among the sharpest of any sector monitored by the Tracker.

“If production costs continue to fall, whilst welcome, it will still take some time before we see the benefit in terms of shelf prices. This is, in part, due to the long-term nature of contracts between the manufacturers and retailers, as well as the broader segments of the production chain.

“With the continued risk of future disruption to supply chains that could mean input costs rising again, food and drink manufacturing companies should continue to review their supply relationships and optimise their working capital to help shield against any market shocks and build ongoing resilience.”

Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.

Britain’s cost of living squeeze is rocking the property sector, driving up cost for tenants and mortgage-owners alike.

With rents rising faster than wages, the average UK tenant is now spending more than 28% of their pay before tax on rent, figures compiled by property portal Zoopla shows.

That means people are spending more of their wages on rent than at any other time in the last 10 years.

Average rents for new lets have also risen, Zoopla reports – jumping 10.4% in a year. With wages only growing by 5.7% during 2022, it has become harder for people to afford places.

In April, rent in London was 13.5% higher than a year ago, in Scotland it was 13.1% higher, and the North West of England saw a 10.5% increase.

Richard Donnell, executive director at Zoopla, said there was signs of financial “stress” for tenants, particularly those on low incomes.

Donnell adds:

“The impact of higher rents is not uniform with those on low incomes bearing the brunt, with increasing signs of stress.”

Those looking to remortgage also face more stress, given the recent increases in borrowing costs.

Yesterday, the cost of the average two-year fixed rate mortgage hit 6% for the first time since December, but the government is resisting calls to help struggling mortgage-payers.

TSB has became the latest lender to pause sales of some of its mortgages, by removing some products at 4pm yesterday.

Also coming up

At 8am we discover if food price inflation eased in the last month, when market research group Kantar releases its latest assessment of the grocery market.

Investors are digesting an overnight rate cut in China overnight. The People’s Bank of China has cut its one-year and five-year loan prime rates 10 basis points each (0.1 percentage point), as Beijing tries to stimulate its economy.

The agenda

• 8am BST: Kantar monthly report on UK grocery industry

• 10am BST: Eurozone construction output in April

• 1.30pm BST: US housing starts and building permits data for May