Rising rents prove hurdle for mortgage borrowers

Rising rents in the US are proving a hurdle for those hoping to secure a mortgage on a house.

Paying for a mortgage is affordable, according to Zillow's latest market analysis, far more so than renting a home.

Renters in the US can now expect to put 30.2 per cent of their monthly income toward rent – the highest percentage ever. (Indeed, before the real estate bubble and bust, renters could expect to spend about a quarter of their incomes on rent.) Buyers, on the other hand, should expect to pay 15.1 per cent of their income towards mortgage payments, which is still less than what they spent historically: from 1985 through 2000, homeowners spent about 21.3 per cent of their monthly income on mortgage payments.

Mortgage payments will continue to be affordable even if mortgage rates rise as expected. If rates reach six percent next year, home buyers can still expect to spend 30 percent or less of their income on mortgage payments in 265 out of 290 (91.4 percent) of the metros Zillow analyzed, and mortgage payments will be considered more affordable than in pre-bubble years in 72.1 percent of metros.

However, even with mortgages affordable, the high rental rates are preventing tenants from making the move onto the housing ladder.

"Our research found that unaffordable rents are making it hard for people to save for a down payment and retirement, and that people whose rent is unaffordable are more likely to skip out on their own healthcare," says Zillow Chief Economist Dr. Svenja Gudell.

"There are good reasons to rent temporarily – when you move to a new city, for example – but from an affordability perspective, rents are crazy right now. If you can possibly come up with a down payment, then it's a good time to buy a home and start putting your money toward a mortgage."