Property now more affordable in the UK thanks to low interest rates and cheaper houses, report shows

by Ray Clancy on January 4, 2010

Homes affordable for first time buyers in the UK

Property is now affordable for first time buyers in nearly four out of 10 areas of the UK, according to new research.

The average first time buyer property could now be bought by someone on average earnings in 39% of local authority districts thanks to a combination of lower interest rates and cheaper real estate prices, a report from the high street bank Halifax shows.

Many first time buyers though have been unable to take advantage of the situation due to the tighter lending criteria being employed by banks and building societies in the wake of the credit crunch.

However, the situation is a marked improvement on 2007, the year in which house prices peaked, when homes in only 6% of areas could be bought by someone on average earnings.

Potential first time buyers on average pay would need to have spent around 27% of their disposable income on mortgage payments in November 2009, almost half the 50% they would have spent on them in June 2007, and below the long-term average of 34%.

‘Housing affordability for potential first-time buyers has improved substantially over the past two years due to the combination of lower house prices and reduced mortgage rates,’ said Martin Ellis, Halifax housing economist.

‘Mortgage payments in relation to earnings are currently significantly below the average during the past 25 years. The tightening in lending criteria over the past two years is, however, making it very difficult for some to take advantage of lower property prices and mortgage rates,’ he added.

Figures from the Council of Mortgage Lenders show that the average person buying their first home with a mortgage put down a deposit of 25% of their property’s value for most of 2009.

There is some evidence though that institutions are beginning to loosen their lending criteria, with a recent report from the Bank of England showing lenders had increased mortgage availability during the final quarter of 2009, particularly for those borrowing more than 75% of their home’s value.

Last week, Nationwide said that house prices rose by 5.9% in 2009 as the UK property market bounced back from last year’s double digit declines. The performance in 2009 is a surprise turnaround on the 15.9% plunge in 2008 and comes despite the worst recession in the UK since the Second World War.

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