In a report by the Halifax released in late August this year, figures showed that mortgage payments by those that could secure a loan were at their lowest relative to ‘take home’ income for 15 years.
Although mortgages are therefore proving more affordable for new borrowers prima facie, this doesn’t take into account the arduous task of actually securing a loan. Alongside these encouraging figures, therefore, were more from the British Banker’s Association indicating that Mortgage Approvals have actually slumped to a 15 year low.
Less people are buying houses then, but those that can are finding it cheaper than it has been for a long time. Typical payments for first time buyers and home movers with new loans are at 26% of take home pay, compared to a peak of 48% back in 2007.
This affordability is good news, but with the Halifax study basing its figures on the average borrower having to deposit 30% of a home’s value and the average home price standing at £161,000 – potential buyers do need an almost £50,000 deposit to actually secure the loan.
The Bank of England has reportedly put this down to static and falling house prices, coupled with low mortgage rates generated partly by the Bank of England maintaining its base rate at a historically low 0.5%.
Even London hasn’t been exempt from this fall in cost, with figures down from a high of 54% in 2007 to 35% of take home earnings in 2012. Martin Ellis, housing economist at 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.”
Interestingly, the figures show a clear north / south divide in affordability, with affordability better in the north. Mortgage payments account for the lowest proportion of disposable earnings in Scotland and Northern Ireland, both (20%), followed by Yorkshire & the Humber (21%). Payments are highest in relation to earnings in Greater London (35%), the South East (32%) and the South West (32%).
The ten least affordable local districts were all in South East England.
Unfortunately, with each dose of good news, more bad inevitably follows. More than a million home owners saw their mortgage payments increase in May, as Britain’s biggest mortgage lender Halifax blamed the increased cost of funding a mortgage for raising its standard variable rate (SVR – ie. the default rate that mortgages switch to once an initial fix or tracker deal period ends). Santander soon followed suit and they announced this month plans to increase their own SVR.
Still, many homeowners are certainly benefitting from affordable loan costs at the moment and now is certainly a good time to get on the property ladder if you can afford to. If you’re thinking about buying a property to take advantage of the current loan rates, talk to an Independent Chartered Surveyor here to find out how they can help you.