Home affordability in the UK is at its best since 1997, report shows

Average mortgage payments as proportion of disposable earnings have fallen, research indicated

Mortgage payments for a new borrower in the second half of 2011 were at their lowest as a proportion of disposable earnings for 14 years, according to new Halifax research.

Typical mortgage payments for a new borrower, both first time buyers and home movers, at the long term average loan to value ratio stood at 27% of disposable earnings in the fourth quarter of 2011. This is well below the average of 37% recorded over the past 27 years, said the Halifax.

Overall, there was a modest fall in payments relative to earnings over the past year from 29% in the fourth quarter of 2010, according to the survey which tracks housing affordability in 386 local authority districts across the UK.

Mortgage payments have nearly halved as a proportion of income in recent years from a peak of 48% in the third quarter of 2007. Lower house prices and reduced mortgage rates have been the main drivers behind the significant improvement in affordability, the report points out.

Average mortgage payments as a proportion of average disposable earnings for a new borrower have fallen by two thirds in Northern Ireland and have nearly halved in both Yorkshire and the Humber and Scotland.

Locally, lower house prices and mortgage rates have resulted in significant improvements in affordability in most local authority districts since 2007. Some 95% of local areas have seen a fall in mortgage payments as a proportion of average earnings of at least 25%. Eighteen areas have recorded an improvement of 50% or more.

Payments are highest in relation to earnings in Greater London at 35% and the South East at 33%. The ten most affordable local areas are all in northern Britain whilst the ten least affordable areas are all in the south.

Seven of the ten most affordable local authority districts are in Scotland. East Ayrshire is the most affordable local authority district in the UK with typical mortgage payments accounting for 15.7% of average local earnings, followed closely by West Dunbartonshire and North Ayrshire both at 16.2%.

Kensington and Chelsea is the least affordable local authority district in the country with average mortgage payments on a new loan accounting for 78% of average local earnings. Brent at 54% and Hammersmith and Fulham at 50%, both in Greater London, are the next least affordable.

‘The falls in house prices and cuts in mortgage rates in the last few years have resulted in a significant improvement in housing affordability for those able to raise the necessary deposit to enter the market.

‘Mortgage payments for a typical new borrower are now at their lowest in proportion to earnings since 1997,’ said Martin Ellis, housing economist at the Halifax.

‘The marked improvement in affordability was a key factor supporting housing demand in 2011. The prospect of an exceptionally low Bank of England Bank Rate over the foreseeable future should maintain affordability at favourable levels in 2012. This should support the market over the coming 12 months, helping to offset the impact of the downward pressures on demand from the ongoing difficulties faced by households regarding their finances and uncertainty about economic prospects,’ he added.

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