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Mortgages at their most affordable for 14 years

Mortgage affordability is at its most favourable since 1999 Quarter 2, with mortgage payments accounting for 27% of a new borrower’s income in 2013 Quarter 2, according to new Halifax research. This is comfortably below the average of 36% recorded over the past 30 years.

Mortgage affordability has improved by 21 percentage points since reaching a peak of 48% of income in 2007 Quarter 3. Lower house prices and reduced mortgage rates have been the main drivers behind the significant improvement in affordability. There has been a further modest improvement over the past year with typical mortgage payments for a new borrower – both first-time buyers and homemovers – at the long-term average loan to value ratio1 falling from 28% of disposable earnings in 2012 Quarter 2 to 27% in 2013 Quarter 2.

There have been significant improvements in affordability in all local authority districts since 2007. Mortgage payments have fallen by at least a half as a proportion of average earnings in 24 areas. More than four in five areas (82%) have seen an improvement of at least a quarter.

Nonetheless, there remains a clear north/south divide.  Mortgage payments are at their lowest as a proportion of disposable earnings in Northern Ireland (17%), Scotland (19%), Yorkshire and the Humber (22%) and the North West (23%). Payments are highest in relation to earnings in Greater London (36%), the South East (34%) and the South West (32%). The 10 most affordable local areas are all in northern Britain, while the 10 least affordable areas are all in the south.

Craig McKinlay, Mortgage Director, Halifax said:

“Substantial mortgage rate reductions and lower house prices have led to a significant improvement in mortgage affordability since the peak of the housing market six years’ ago.  The Funding for Lending Scheme has helped lenders to cut mortgage rates causing a further modest improvement in affordability over the past year despite the modest rise in house prices nationally.

“The favourable mortgage affordability position is a boost for both those who already have a mortgage and those who are able to raise the required deposit to buy a home. Improved mortgage affordability has been a key factor supporting housing demand and is helping to stimulate the modest recovery that we are currently seeing.

“Significant numbers of would-be home-buyers and movers remain unable to enter the market due to higher deposit requirements than a few years’ ago and low, or negative, levels of housing equity. However, the recent figures showing 10,000 aspiring home-owners have already signed up to the Help to Buy scheme shows the potential of the Government backed schemes to continue to improve access to the market.”

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