Low mortgages boost affordability

20 February 2017 12:06PM

HISTORICALLY low mortgage rates are the main driver behind a significant improvement in affordability for home borrowers in the UK since 2007.

Mortgage affordability, that is the proportion of income spent on home loan payments, has remained well below the peak of 2007, according to the study from lender the Halifax, up 18 per cent in the last decade.

Typical mortgage payments for new borrowers, both first time buyers and home movers, at the historic average loan to value ratio, stood at 30 per cent in the fourth quarter of 2016 compared to the peak of 48 per cent in the third quarter of 2007.

Despite average house prices growing by seven per cent in the past year, mortgage affordability in the final quarter of 2016 was unchanged and comfortably below the long-term average of 35 per cent. This proportion has stayed low due to a further dip in mortgage rates during 2016, from an average of 2.49 per cent in the first quarter to 2.17 per cent in the fourth quarter.

The research shows that the significant improvements in affordability is nationwide, with mortgage payments falling by at least 40 per cent as a proportion of average earnings in 10 areas and 60 per cent of all districts have seen an improvement of at least 15 per cent over the period.

The research reveals a clear north/south divide. Mortgage payments are at their lowest as a proportion of disposable earnings in Scotland at 19 per cent and highest in Greater London at 49 per cent.

“Looking back almost a decade, there has been a considerable improvement in housing affordability across the country, which has been maintained over the past year as further falls in mortgage rates have offset the effects of higher house prices,” said Martin Ellis, housing economist at Halifax.

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