Typical mortgage payments for new borrowers, both first time buyers and home movers, at the long term average loan to value ratio stood at 26% of disposable earnings in the second quarter of 2012.
The research also shows that there has been a continued fall in payments relative to earnings over the past year from 29% in the second quarter of 2011, taking this measure further below the long term average of 36%.
Overall, mortgage payments have nearly halved as a proportion of income over the past five years from a peak of 48% in the third quarter of 2007.
‘Lower house prices and reduced mortgage rates have led to a significant improvement in housing affordability for those able to fund the necessary deposit to enter the market over the past five years. As a result, mortgage payments for a typical new borrower currently account for the lowest proportion of earnings for 15 years,’ said Martin Ellis, housing economist at the Halifax.
‘The relatively low level of mortgage payments in relation to income is providing support for house prices. The prospect of interest rates remaining at low levels for sometime yet is expected to continue to be a key factor supporting the demand for homes, helping to keep house prices around their current level during the remainder of 2012,’ he added.
Affordability is better than the long term average in all regions. Each of the 12 UK regions has seen a marked improvement in affordability since mid 2007. Average mortgage payments as a proportion of average disposable earnings for a new borrower have fallen most, by two thirds, in Northern Ireland and have nearly halved in Wales, Yorkshire and the Humber and Scotland.
There have been significant improvements in affordability in most local authority districts since 2007. Some 98% of local areas have seen a fall in mortgage payments as a proportion of average earnings of at 25% or more. Some 37 areas, nearly 10% of the total surveyed, have recorded an improvement of at least 50%.
Nonetheless, a clear north/south divide in affordability persists with affordability better in the north. Mortgage payments account for the lowest proportion of disposable earnings in Scotland and Northern Ireland both at 20%, followed by Yorkshire and the Humber at 21%. Payments are highest in relation to earnings in Greater London at 35%, the South East at 32% and the South West at 32%.
The ten most affordable local authority districts are all in Scotland. East Ayrshire is the most affordable local authority district in the UK with typical mortgage payments accounting for 15% of average local earnings. East Ayrshire is followed by West Dunbartonshire at 16.1% and North Ayrshire at 16.2%.
The ten least affordable local areas are all in southern England. Kensington and Chelsea is the least affordable local authority district in the country with average mortgage payments on a new loan accounting for 77% of average local earnings. The London boroughs of Brent at 52% and Hammersmith and Fulham at 51%, are the next least affordable.
The Halifax Affordability Review tracks housing affordability for all home buyers in 383 local authority districts, including 32 London boroughs, across the UK. The affordability calculation used in this analysis measures the degree of difficulty faced by a potential new borrower in entering the local housing market dependent on current average house prices, mortgage rates and average earnings.
The higher mortgage payments are for a potential new borrower in relation to average disposable earnings, i.e. after deduction of income tax and national insurance, the more difficult, and less affordable, it is to enter the market.
