Mortgage payments most affordable in 14 years

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by Gill Montia

Mortgage payments for new borrowers have almost halved as a proportion of disposable income, down from a peak of 48% in the third quarter of 2007 to 27% at the end of 2011.

According to new Halifax research, repayments for both first-time buyers and home movers are swallowing up the smallest proportion of disposable income for 14 years.

Lower house prices and reduced mortgage rates are the main drivers of the improvement, with affordability for new borrowers now better than the long-term average in all regions of the UK.

Notably, average mortgage payments as a proportion of disposable earnings have fallen by two-thirds in Northern Ireland and have nearly halved in both Yorkshire & the Humber and Scotland.

However, a clear north / south divide in affordability exists with payments highest in relation to earnings in Greater London (35%) and the South East (33%).

Halifax housing economist, Martin Ellis, comments: “The marked improvement in affordability was a key factor supporting housing demand in 2011.”

Looking ahead, Mr Ellis expects the exceptionally low base rate to maintain affordability at favourable levels.

Hopefully, this should help to offset downward pressures on the housing market in 2012, such as squeezed household finances and uncertainty over the economy.

Other key findings from the research are as follows:

Seven of the ten most affordable local authority districts are in Scotland.

East Ayrshire is the most affordable local authority district in the UK with typical mortgage payments accounting for 15.7% of average local earnings.

Kensington and Chelsea is the least affordable local authority in the country, with average mortgage payments on a new loan accounting for 78% of average local earnings.

Brent (54%) and Hammersmith & Fulham (50%), both in Greater London, are the next least affordable.