UK mortgages at their most affordable for many years

Mortgages in the UK are at their most affordable for 14 years with payments as a proportion of income 21% lower than in 2007, according to new research. The Halifax Affordability Review, which tracks mortgage affordability for all home buyers in nearly 400 local authority districts across the UK, says that lower house prices and reduced mortgage rates have been the main drivers behind the significant improvement in affordability.

There has been a further modest improvement over the past year with typical mortgage payments for a new borrower, both first time buyers and home movers, at the long term average loan to value ratio falling from 28% of disposable earnings in the second quarter of 2012 to 27% in the second quarter of 2013. There have been significant improvements in affordability in all local authority districts since 2007. Mortgage payments have fallen by at least a half as a proportion of average earnings in 24 areas. More than four in five areas, 82%, have seen an improvement of at least a quarter.

Nonetheless, there remains a clear north/south divide. Mortgage payments are at their lowest as a proportion of disposable earnings in Northern Ireland at 17%, Scotland at 19%, Yorkshire and the Humber at 22% and the North West at 23%. Payments are highest in relation to earnings in Greater London at 36%, the South East at 34% and the South West at 32%. The 10 most affordable local areas are all in northern Britain, while the 10 least affordable areas are all in the south.

Quote from PropertyForum.com : “Earlier this week Mark Carney, the Governor of the Bank of England, confirmed that UK base rates are unlikely to increase prior to the election in 2015.”

‘Substantial mortgage rate reductions and lower house prices have led to a significant improvement in mortgage affordability since the peak of the housing market six years’ ago. The Funding for Lending Scheme has helped lenders to cut mortgage rates causing a further modest improvement in affordability over the past year despite the modest rise in house prices nationally,’ said Craig McKinlay, mortgage director at the Halifax.

‘The favourable mortgage affordability position is a boost for both those who already have a mortgage and those who are able to raise the required deposit to buy a home. Improved mortgage affordability has been a key factor supporting housing demand and is helping to stimulate the modest recovery that we are currently seeing,’ he explained. ‘Significant numbers of would be home buyers and movers remain unable to enter the market due to higher deposit requirements than a few years’ ago and low, or negative, levels of housing equity. However, the recent figures showing 10,000 aspiring home owners have already signed up to the Help to Buy scheme show the potential of the Government backed schemes to continue to improve access to the market,’ he added.

The research also shows that current mortgage payments as a proportion of earnings are lower than the long term average in all regions. Average mortgage payments as a proportion of average disposable earnings for a new borrower have fallen by almost 75% in Northern Ireland, have nearly halved in the North, and have dropped by nearly a third in London.

Seven of the 10 most affordable local authority districts are in Scotland. East Ayrshire in Scotland and Omagh in Northern Ireland are the most affordable local authority districts in the UK with typical mortgage payments accounting for 14.7% of average local earnings in both areas. The 10 least affordable areas are all in southern England. Camden is the least affordable local authority district in the country with average mortgage payments on a new loan accounting for 53% of average local earnings. Oxford at 49% and Hammersmith and Fulham at 48% are the next least affordable areas.