Affordability for first-time buyers improves significantly

In 2007, only 6% of areas were affordable. Nearly a quarter (24%) of local authority areas became affordable between 2008 and 2009.

The proportion of disposable earnings devoted to mortgage payments by a potential new FTB on national average earnings – a measure of affordability that includes the impact of interest rate changes – has almost halved from a peak of 50% in June 2007 to 27% in November 2009.

This improvement in affordability has been a result of the combination of lower house prices and interest rate reductions.
The current level is below the average over the past 25 years of 34%.

The tightening in lending criteria since the summer of 2007 has meant that some potential FTBs have been unable to enter the market despite the marked improvement in affordability. There are, however, signs that lending criteria has stopped tightening.

For example, industry-wide figures show that the average deposit put down by an FTB has been unchanged as a percentage of the purchase price since early in 2009 following a significant increase in 2008. There is also evidence of increased mortgage availability.

The number of live mortgage products has risen by 33% from a low of 1209 in April 2009 to 1610 in December.

Martin Ellis, housing economist at Halifax, said: "Housing affordability for potential first-time buyers has improved substantially over the past two years due to the combination of lower house prices and reduced mortgage rates.

"Mortgage payments in relation to earnings are currently significantly below the average during the past 25 years. The tightening in lending criteria over the past two years is, however, making it very difficult for some to take advantage of lower property prices and mortgage rates."

The largest increases in the percentages of local authority areas that have become affordable for FTBs between 2007 and 2009 are in the North East (6% to 94%) and Yorkshire and the Humber (6% to 81%). These are also the two regions where housing is most affordable for FTBs.

The only regions where there has been no increase in the number of affordable local authorities are London and Northern Ireland. These are the only two areas of the UK where the average property bought by a FTB remains unaffordable for someone on average earnings in all the local areas surveyed.

The number of FTBs increased by an estimated 32% between the second half of 2008 and the same period in 2009, from 84,000 to around 111,000. A weak first half of the year, however, meant that the total for 2009 was 4% lower than in 2008, at an estimated 185,000 compared with 193,600.

FTBs accounted for an estimated 38% of all mortgage borrowers in 2009. This proportion is unchanged from 2008, but was higher than the 35% recorded in 2007.

The average price paid by an FTB in 2009 was 10% lower than in 2008, at £133,794, despite an increase in the prices paid by FTBs during recent months.

FTBs put down an average deposit of £29,439 in 2009, equivalent to 22% of the property price. FTBs in Greater London put down the largest deposit: £53,932 (25% of the value of the property). FTBs in the North put down the smallest deposit, £16,860 (18%).

The average mortgage for a new FTB in 2009 was £104,000. This was 14% lower than in 2008 (£122,000). The monthly mortgage payment for an average loan in 2009 was £562 (assuming a 25-year repayment mortgage at the industry average tracker variable interest rate for a new borrower). This was 27% lower than the average monthly mortgage payment of £768 in 2008.

The average age of an FTB has risen from 29 in 2008 to 30 years old in 2009. Recent research has found that increasing numbers of FTBs have been receiving financial assistance to raise funds for a deposit. The latest estimates indicate that around 80% of FTBs are getting such help. The CML estimates that the average age of those FTBs who have not had financial assistance has risen sharply from around 33 in late 2007 to 36 now.

Nationally, FTBs buy more terraced homes than any other property type, with this property type accounting for 42% of all FTB purchases in 2009. The second most popular property type with FTBs is semi-detached properties (30%) followed by flats and maisonettes (21%). Unsurprisingly, few FTBs (7%) purchase a detached property.

There are some marked regional differences in the type of properties that FTBs buy. FTBs in London and Scotland are most likely to buy a flat, accounting for nearly one in two home purchases in both areas. In contrast, flats account for one in 20 purchases by FTBs in Yorkshire and the Humber and the East Midlands.

There has been a substantial shift in the type of properties bought by FTBs between 2007 and 2009. In 2007, 37% of FTBs bought flats and a further 37% purchased terraces. The proportion of flats bought has since fallen sharply, to 21% in 2009. Purchases of semi-detached homes have risen from 21% to 30% and the purchase of terraces has increased from 37% to 42% over the two years.

Nearly three in ten (27%) FTBs are estimated to have not paid stamp duty on home purchases made between September 2008 and November 2009 as a result of the raising of the nil rate threshold. Fewer than one in five (17%) FTB purchases during this period were above the temporarily higher threshold of £175,000. The proportion of FTBs in the UK that would have paid stamp duty if the threshold had been £125,000 is estimated to be 44%.

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