10-year high for mortgage affordability

10-year high for mortgage affordability

Halifax has reported that mortgages in the UK have reached their most affordable level in a decade.

Typical mortgage payments accounted for 29% of homeowners’ disposable income in the fourth quarter of 2017 compared to 48% in Q3 2007. This means mortgage affordability levels for first-time buyers and homemovers have dropped by 40% since the 2007 peak.

The lender said this significant improvement in affordability since 2007 has been driven predominantly by historically low mortgage rates, despite the first base rate rise in a decade last November.

With average house prices rising by 3% in the past year, mortgage affordability marginally improved in the last quarter of 2017, edging down from 29.6% in 2016.This is comfortably below the long-term average of 35%, remaining low due to a further dip in mortgage rates during 2017 from an average of 2.09% in Q1 to 1.98% in Q4.

Andy Bickers, mortgage director at Halifax, said: “This is a real boost for both those who already have a mortgage and those preparing to take their first step on to the property ladder. Improved mortgage affordability has been a key factor supporting housing demand and helping to stimulate the modest recovery that we are currently seeing.

“In recent months we have seen the number of first-time buyers and homemovers purchasing a home with a mortgage bounce back towards 2007 levels, and mortgage payments becoming a much smaller proportion of disposable income across most of the country will also support a heathy market with more choice and opportunity for buyers/borrowers.”

There have been significant improvements in affordability in almost all local authority districts (LADs) since 2007, with mortgage payments falling by at least 30% as a proportion of average earnings in 35 areas. 74% of all districts have seen an improvement of at least 15 percentage points over the period.

The greatest improvements were mostly in Northern Ireland, where affordability has improved due to a significant fall in house prices, which are now 44% lower than in 2007. In North Down and Ards, mortgage payment as a proportion of disposable earnings has fallen by more than half (from 81% to 19% in Q4 2017), followed by Lisburn and Castlereagh (74% to 18%) and Mid-Ulster (72% to 19%).

In England, the most significant improvement has been in South Bucks, where the proportion of average disposable earnings devoted to mortgage payments has fallen sharply from 93% to 53%, a reduction of 40 percentage points in the past decade.

While mortgage payments are at their lowest as a proportion of disposable earnings in Northern Ireland (19%), Scotland and the North (both 20%), Yorkshire and the Humber and the North West (both 23%), these are highest in Greater London (45%), the South East (40%) and South West (34%).

The 10 most affordable local areas are all in northern Britain, whilst the 10 least affordable areas are all in the South.

Scotland and the North West have an equal share of the 10 most affordable local authority districts in the UK. Copeland in Cumbria is the most affordable, where typical mortgage payments account for 15% of average local earnings, followed by Inverclyde, North Ayrshire and West Dunbartonshire in Scotland all 16%.

The 10 least affordable areas are predominantly in London and the South East. Brent and Haringey are the least affordable places in the country with average mortgage payments on a new mortgage loan, accounting for 61% of average local disposable earnings, followed by Harrow (58%) and Elmbridge (56%).

Affordability has worsened over last  five years as average house prices rise Whilst the comparison of mortgage affordability over the last 10 years shows a vast improvement, when looking only over a five-year period, affordability – on this measure – has actually deteriorated. Whilst the average mortgage rate has fallen from 3.7% in 2012 to 1.98% at the end of 2017, average house prices have grown by 40% in the same period.

As a result, 89 LADs have seen mortgage affordability as proportion of disposable earnings rise by at least 5%. In Elmbridge in the South East, this measure has deteriorated from 34% to 56% with an average of 22% more disposable earnings devoted to mortgage payments. The Surrey district is followed by Merton (33% to 52%) and Hillingdon (38% to 56%). However, there are areas where mortgage affordability has improved since 2012; in Torridge in North Devon, this ratio has fallen from 45% to 35% and similarly in Ceredigion (40% to 31%).