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Home affordability at its best since 1997

Home affordability at its best since 1997

Category: Mortgages

Updated: 17/01/2012
First Published: 17/01/2012

This article was correct at the time of publication. It is now over 6 months old so the content may be out of date.

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

On average, new borrowers, which include both first time buyers and homemovers, spent 27% of their disposable earnings on mortgage payments in the last three months of 2011, well below the average of 37% recorded over the past 27 years.

Overall, a modest fall in payments relative to earnings was recorded over the past year, having dropped from 29% in the fourth quarter of 2010.

However, mortgage payments have nearly halved as a proportion of income in recent years, dropping from a peak of 48% in the third quarter of 2007.

Lower house prices and reduced mortgage rates have both been the main drivers behind the significant improvement in affordability.

However, the lender says a clear north / south divide in affordability is certainly apparent, with mortgage payments accounting for the lowest proportion of disposable earnings in Scotland (20%), Yorkshire & the Humber and Northern Ireland .

Payments are highest in relation to earnings in Greater London (35%) and the South East (33%).

Further confirming the trend, the data reveals the ten most affordable local areas are all in northern Britain whilst the ten least affordable areas are all in the south.

"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," said Martin Ellis, housing economist at Halifax.

"Mortgage payments for a typical new borrower are now at their lowest in proportion to earnings since 1997."

Adding that the marked improvement in affordability was a key factor supporting housing demand in 2011, Mr Ellis said the prospect of the Bank of England keeping base rate low for the foreseeable future should help 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."

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