Home buying now more affordable

by Ray Clancy on August 30, 2011

Purchasing a home is within easy reach

Buying a home in the UK is more affordable than it has been for the last 12 years, according to new research for leading lender the Halifax.

The proportion of disposable earnings devoted to mortgage payment, a key affordability measure, is at its most favorable for 12 years, it says.

Nationally, typical mortgage payments for a new borrower, both first time buyers and home movers, at the historic average loan to value ratio stood at 28% in the second quarter of 2011, the lowest level since 1999 and down by almost half from a peak of 48% of average disposable earnings in the third quarter of 2007.

There has also been a modest decline over the past year from 30% in the second quarter of 2010, reducing mortgage payments relative to earnings further below the average of 37% recorded over the past 27 years.

Lower house prices and reduced mortgage rates, which have fallen since 2007 from an average of 5.84% to 3.85%, have been the main drivers behind the significant improvement in affordability.

However, the average deposit put down by buyers has increased over the same period from 20% of the property value in the third quarter of 2007 to 25% in the second quarter of 2011.

All 12 regions have experienced the improvement in affordability since the middle of 2007 with affordability better than the long-term average in all regions. The most substantial percentage falls in average mortgage payments as a proportion of average disposable earnings have been in Northern Ireland (-62%) and Wales (-45%).

Locally, the fall in house prices and mortgage rates have also led to improvements in affordability in all local authority districts since 2007. Sixteen areas have recorded an improvement of 50% or more. The overwhelming majority, 94%, has seen a fall in mortgage payments as a proportion of average earnings of at least 25%.

Eight of the ten local areas that have experienced the biggest improvement in affordability since the middle of 2007 are in Northern Ireland. Carrickfergus has seen the biggest percentage improvement in mortgage payments as a percentage of average earnings (-63%) followed by Castlereagh (-62%) and Craigavon (-61%). Corby and Forest Heath are the other two areas in the top ten.

‘Lower house prices and reduced mortgage rates have resulted in a substantial improvement in housing affordability since the peak of the housing market in 2007. Housing is now at its most affordable for 12 years, and mortgage payments for a typical new borrower, compared to average earnings, are now comfortably below the long term average,’ said Martin Ellis, housing economist at the Halifax.

‘The improvement in affordability has been an important factor supporting housing demand this year. With the prospect of continuing low rates for some time yet, affordability is likely to remain favorable. These affordability gains, together with a slowly improving economy, should help to support demand in the face of pressures from weak earnings growth, relatively high inflation and higher taxes,’ he added.

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