Mortgage payments are 9% more affordable in Scotland than the UK average with home owners spending 20% of their disposable income on monthly home loans, new research shows.
However, mortgage affordability has marginally dropped in the last 12 months but Scotland is still the second most affordable place to own a home after Northern Ireland, according to a study from the Bank of Scotland.
Mortgage affordability has only marginally deteriorated from 19.7% in 2016 to 20.1% in 2017 despite the first interest rate in recent years and house prices in Scotland rising by 7% in the last 12 months.
Overall, five out of the 10 most affordable local authority districts in the UK are in Scotland with Inverclyde most affordable in Scotland and second most affordable in the UK after Copeland in North West England.
Inverclyde made the jump from fifth most affordable at the end of 2016 to Scotland’s most affordable with mortgage payments taking up 15.7% of disposable income. In North Ayrshire it is 15.9%, West Dunbartonshire 16.2%, Renfrewshire 16.4%, and East Ayrshire 16.6%, all of which are in the UK’s 10 most affordable locations.
The research also reveals that over the last 12 months there has been a 7% increase in house prices in Scotland which has led to a marginal decrease in mortgage affordability. Despite the recent increase in the Bank of England base rate at the end of last year there has been little impact on mortgage rates so far.
However, the report suggests that if rates were to rise over the course of 2018 this could impact the 46% of UK households who have a mortgage either on a standard variable rate or tracker rate with potentially higher payments.
Despite the very slight decrease of 0.4% in affordability, the percentage of disposable income typically spent on mortgage payments has nearly halved compared to a decade ago. At the end of 2007, mortgage payments typically cost Scots 38% of their disposable income and now they pay 20.1% with an average monthly mortgage payment of £442. This is £227 less than the UK average of £669.
‘Despite the base rate towards the end of last year, it was the rise in house prices that had a slight impact on mortgage affordability for homeowners in Scotland,’ said Ricky Diggins, director at the Bank of Scotland.
‘However even with the slight decrease in affordability over the last year, the average amount that home owners spend on their mortgage payments as a proportion of disposable income is significantly less now when compared to ten years ago and Scotland is typically more affordable when compared to the rest of the UK,’ he pointed out.
The study shows that mortgage affordability has improved across the whole of Scotland over the last decade and mortgage payments as a proportion of average earnings have fallen by at least 15% in 28 out of 31 areas. The Shetland Islands has seen the smallest change in mortgage affordability since 2007, improving by 6.8% during that time.
The largest improvement in mortgage affordability was seen in Inverclyde where mortgage payments as a proportion of disposable earnings fell by 23% over 10 years from 38.7% to 15.7%.
The least affordable location in Scotland is East Dunbartonshire where mortgage payments take up 24.7% of average monthly disposable income. This has increased by 1.8% since this time last year while other areas to see deterioration are East Renfrewshire at 2.8% and the Scottish Borders and Clackmannanshire both at 2.2
The area which has seen the biggest decrease in mortgage affordability is East Renfrewshire which is 2.8% less affordable than a year ago, making mortgage payments as a proportion of average earnings 24%.
