"Looking back almost a decade, there has been a considerable improvement in housing affordability across the country"
Mortgage affordability – the proportion of disposable earnings devoted to mortgage payments – has improved by 18 percentage points since 2007. Typical mortgage payments for new borrowers (both first-time buyers and homemovers) at the average LTV ratio stood at 30% in Q4 2016 compared to the peak of 48% in Q3 2007.
Halifax says that historically low mortgage rates have been the main driver behind the significant improvement in affordability since 2007.
Despite average house prices growing by 7% in the past year, mortgage affordability in Q4 2016 was unchanged from 2015 at 30% and remains comfortably below the long-term average of 35%. This proportion has stayed low due to further dip in mortgage rates during 2016, from an average of 2.49% in Q1 to 2.17% in Q4.
There have been significant improvements in affordability in almost all local authority districts since 2007, with mortgage payments falling by at least 40% as a proportion of average earnings in 10 areas. Almost two thirds (60%) 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 housing affordability has improved due to a significant fall in house prices, now 40% lower than in 2007.
In North Down and Ards mortgage payments as a proportion of disposable earnings have fallen by more than half (from 73% to 21% in Q4 2016), followed by Lisburn and Castlereagh (69% to 19%) and Causeway Coast and Glens (68% to 20%).
In England, the most significant improvement has been in South Bucks where the proportion of average disposable earnings devoted to mortgage payments has plummeted from 96% to 51%.
However, there are seven areas where affordability on this measure has deteriorated since Q3 2007, including Mole Valley in Surrey (from 57% to 65%), and the London boroughs of Waltham Forest (52% up to 56%) and Harrow (from 58% to 63%). These areas have seen significant house price growth in the range of 46% to 88% since 2007.
Seven of the 10 most affordable local authority districts are in Scotland, with West Dunbartonshire, North Lanarkshire and East Ayrshire among the most affordable local authority districts in the UK. There, typical mortgage payments account for 16% of average local earnings in all areas.
Unsurprisingly, the 10 least affordable areas are predominantly in London.
Martin Ellis, housing economist at Halifax, said: “Looking back almost a decade, there has been a considerable improvement in housing affordability across the country, which has been maintained over the past year as further falls in mortgage rates have offset the effects of higher house prices.
“The significant reduction in mortgage payments by a typical borrower has resulted mostly from record low rates that have provided monthly savings of, on average, around £220 in 2016 compared to a peak monthly payment of £888 in 2007.”
