Mortgages at their most affordable for over 10 years

House Prices

The proportion of household income being used to meet mortgage repayments has fallen to the lowest level since 1999.

Research done by the Halifax shows that for both first time buyers and existing homeowners the average mortgage now takes up 28% of disposable income, the peak was at the height of the housing boom in 2007 when the figure stood at 48%.

All 12 regions of the UK have seen an increase in mortgage affordability since mid 2007, with the largest improvement taking place in Wales and Northern Ireland. The most expensive part of the UK would seem to be Kensington & Chelsea where mortgage payments take up a massive 75% of disposable income.

Low interest rates

The main driver of the reduction has been the low interest rate environment we have been experiencing, Bank of England base rate has remained unchanged for approximately two and a half years, which has helped borrowers on variable or tracker deals. Further helping reduce costs, at least for those people who can get a mortgage, is the plethora of cheaper fixed rate deals which have been seen, particularly in the last few months.

The reduced cost of housing, a result of the value of homes falling over the past few years, has also helped to increase affordability as will the higher deposits needed now to secure the best mortgage rates; in 2007 the average deposit was 20%, this has risen to 25% in 2011.


Martin Ellis, housing economist at the Halifax said: “Housing is now at its most affordable for 12 years, and mortgage payments for a typical new borrower, compared to average earnings, are now comfortably below the long-term average.”

He continued: “The improvement in affordability has been an important factor supporting housing demand this year. With the prospect of continuing low rates for some time yet, affordability is likely to remain favorable. These affordability gains, together with a slowly improving economy, should help to support demand in the face of pressures from weak earnings growth, relatively high inflation and higher taxes.”

Not all good news

The latest figures by the Halifax might on the face of it be good news, but there are still plenty of difficulties in the housing market. The number of house sales is still stagnant with mortgage approvals rising only modestly last month. House prices themselves have fallen over the past year although they have risen modestly in some regions over the past few months.

Perhaps the biggest challenge in the mortgage market at the moment though is continued tight lending criteria which means that the best deals are reserved for those with the largest deposits and is making it hard for first time buyers to get on the housing ladder. Indeed a survey by the Post Office last week found that over 50% of potential first time buyers believe that they will never be able to afford their own home.