Monthly mortgage payments in the UK are at most affordable for 10 years

Mortgages in the UK have reached their most affordable level in a decade with home owners spending less than a third of the disposable income on monthly home loan payments, new research has found.

Typical mortgage payments accounted for 29% of home owners’ disposable income in the fourth quarter of 2017 compared to 48% in 2007, according to a new study from the Halifax. It means mortgage affordability levels for first time buyers and home movers have dropped by 40% since the 2007 peak.

The report says that the significant improvement in affordability since 2007 has been driven predominantly by historically low mortgage rates, despite the first base rate rise in a decade last November.

With average house prices rising by 3% in the past year, mortgage affordability marginally improved in the last quarter of 2017, edging down from 29.6% in 2016.This is comfortably below the long-term average of 35%, remaining low due to a further dip in mortgage rates during 2017 from an average of 2.09% in the first quarter to 1.98% in the fourth quarter.

According to Andy Bickers, mortgage director at the Halifax, this is a real boost for both those who already have a mortgage and those preparing to take their first step on to the property ladder.

Andy Bickers said:

‘Improved mortgage affordability has been a key factor supporting housing demand and helping to stimulate the modest recovery that we are currently seeing.

‘In recent months we have seen the number of first time buyers and home movers purchasing a home with a mortgage bounce back towards 2007 levels, and mortgage payments becoming a much smaller proportion of disposable income across most of the country will also support a heathy market with more choice and opportunity for buyers and borrowers.’

The study also reveals that mortgage affordability has improved in vast majority of areas since the fourth quarter of 2007 with mortgage payments falling by at least 30% as a proportion of average earnings in 35 areas. Some 74% of all districts have seen an improvement of at least 15 percentage points over the period.

The greatest improvements were mostly in Northern Ireland, where affordability has improved due to a significant fall in house prices, which are now 44% lower than in 2007. In North Down and Ards, mortgage payment as a proportion of disposable earnings has fallen by more than half from 81% to 19% in the fourth quarter of 2017, followed by Lisburn and Castlereagh from 74% to 18% and Mid-Ulster from 72% to 19%.

In England, the most significant improvement has been in South Buckinghamshire where the proportion of average disposable earnings devoted to mortgage payments has fallen sharply from 93% to 53%, a reduction of 40 percentage points in the past decade.

It also reveals a North/South mortgage divide. While mortgage payments are at their lowest as a proportion of disposable earnings in Northern Ireland at 19%, Scotland and the North both at 20% and the Humber and the North West both at 23%, they are highest in Greater London at 45%, the South East at 40% and the South West at 34%.

The 10 most affordable local areas are all in northern Britain, whilst the 10 least affordable areas are all in the South.

Scotland and the North West have an equal share of the 10 most affordable local authority districts in the UK. Copeland in Cumbria is the most affordable, where typical mortgage payments account for 15% of average local earnings, followed by Inverclyde, North Ayrshire and West Dunbartonshire in Scotland all 16%.

The 10 least affordable areas are predominantly in London and the South East. Brent and Haringey are the least affordable places in the country with average mortgage payments on a new mortgage loan, accounting for 61% of average local disposable earnings, followed by Harrow at 58% and Elmbridge at 56%.

The study shows that affordability has worsened over last five years as average house prices rise. Whilst the comparison of mortgage affordability over the last 10 years shows a vast improvement, when looking only over a five year period, affordability on this measure has actually deteriorated. Whilst the average mortgage rate has fallen from 3.7% in 2012 to 1.98% at the end of 2017, average house prices have grown by 40% in the same period.

As a result, 89 local authority districts have seen mortgage affordability as proportion of disposable earnings rise by at least 5%. In Elmbridge in the South East, this measure has deteriorated from 34% to 56% with an average of 22% more disposable earnings devoted to mortgage payments. The Surrey district is followed by Merton from 33% to 52% and Hillingdon from 38% to 56%. However, there are areas where mortgage affordability has improved since 2012.

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