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UK mortgages at most affordable levels since 2007

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Thu 22 Mar 2018

UK mortgages at most affordable levels since 2007

New research from Halifax has revealed that mortgages in the UK have reached their most affordable level in a decade, with typical payments accounting for 29% of disposable income in Q4 2017 compared to 48% Q3 in 2007.

According to the research, this means mortgage affordability levels for first-time buyers and homemovers have dropped by 40% since the 2007 peak.

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%,2, remaining low due to a further dip in mortgage rates during 2017 from an average of 2.09%1 in Q1 to 1.98%1 in Q4.

North / South mortgage divide

While mortgage payments are at their lowest as a proportion of disposable earnings in Northern Ireland (19%), Scotland and the North (both 20%), Yorkshire and the Humber and the North West (both 23%), these are highest in Greater London (45%), the South East (40%) and South West (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%.

Unsurprisingly, 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 (58%) and Elmbridge (56%).

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 LADs 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 (33% to 52%) and Hillingdon (38% to 56%). However, there are areas where mortgage affordability has improved since 2012; in 
Torridge in North Devon, this ratio has fallen from 45% to 35% and similarly in Ceredigion (40% to 31%).

Andy Bickers, Mortgage Director at Halifax, said: "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. 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 homemovers 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/borrowers.”