Mortgage affordability has improved by 18 percentage points since 2007

Almost all local authority districts in the UK have benefitted from improved mortgage affordability since the pre-crisis peak of 2007, according to new research.

According to Halifax, mortgage affordability, which is the proportion of disposable earnings borrowers devote to mortgage payments, has improved by 18 percentage points since 2007 for new homebuyers.

Compared to the peak of 48% in Q3 2007, typical mortgage payments for both first-time buyers and homemovers, at the average LTV ratio, were calculated at 30% in Q4 2016.

Halifax attributes the improvement in mortgage affordability to historically low mortgage rates.

Even though house prices increased by 7% over the past year, mortgage affordability has remained unchanged since the 30% recorded in 2015, and is markedly below the long-term average of 35%. The historically low mortgage rates in 2016, from an average of 2.49% in Q1 to 2.17% in Q4 are said to have contributed to this.

In terms of geographical differences in mortgage affordability, there has been a significant improvement in almost all local authority districts since 2007: in 10 areas mortgage payments fell by at least 40% as a proportion of average earning, while 60% of all districts witnessed an improvement of at least 15 percentage points over the period.

Due to falling house prices, the greatest improvements were seen in Northern Ireland. In North Down and Ards, mortgage affordability fell from 73% to 21% in Q4 2016, followed by Lisburn and Castlereagh, where mortgage payments as a proportion of disposable earnings fell from 69% to 19% and Causeway Coast and Glens (68% to 20%).

South Bucks is cited as the county that has seen the most significant improvements in England, with the proportion of average disposable earnings devoted to mortgage payments having dropped from 96% to 51%.

Halifax noted seven areas where affordability had worsened since Q3 2007, again due to rising house prices. These included Mole Valley in Surrey (from 57% to 65%), and the London boroughs of Waltham Forest (52% up to 56%) and Harrow (from 58% to 63%). House price growth in these areas has ranged from 46% to 88% since 2007.

Ten of the least affordable areas are in London, while seven out of the ten most affordable local authority districts are in Scotland. These include West Dunbartonshire, North Lanarkshire and East Ayrshire where typical mortgage payments account for 16% of average local earnings in all areas.

Martin Ellis, housing economist at Halifax, said:

“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.

“The significant reduction in mortgage payments by a typical borrower has resulted mostly from record low rates that have provided monthly savings of, on average, around £220 in 2016 compared to a peak monthly payment of £888 in 2007.”

 

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