The affordability calculation used in this analysis measures the degree of difficulty faced by a potential new borrower in entering the local housing market dependent on current average house prices, mortgage rates and average earnings.
Mortgage affordability is at its most favourable since 1999 Quarter 2, with mortgage payments accounting for 27% of a new borrower's income in 2013 Quarter 2, according to new Halifax research. This is comfortably below the average of 36% recorded over the past 30 years.
Mortgage affordability has improved by 21 percentage points since reaching a peak of 48% of income in 2007 Quarter 3. Lower house prices and reduced mortgage rates have been the main drivers behind the significant improvement in affordability. There has been a further modest improvement over the past year with typical mortgage payments for a new borrower - both first-time buyers and homemovers - at the long-term average loan to value ratio1 falling from 28% of disposable earnings in 2012 Quarter 2 to 27% in 2013 Quarter 2.
There have been significant improvements in affordability in all local authority districts since 2007. Mortgage payments have fallen by at least a half as a proportion of average earnings in 24 areas. More than four in five areas (82%) have seen an improvement of at least a quarter.
Nonetheless, there remains a clear north / south divide. Mortgage payments are at their lowest as a proportion of disposable earnings in Northern Ireland (17%), Scotland (19%), Yorkshire and the Humber (22%) and the North West (23%). Payments are highest in relation to earnings in Greater London (36%), the South East (34%) and the South West (32%). The 10 most affordable local areas are all in northern Britain, while the 10 least affordable areas are all in the south.
Craig McKinlay, Mortgage Director, Halifax said:
"Substantial mortgage rate reductions and lower house prices have led to a significant improvement in mortgage affordability since the peak of the housing market six years' ago. The Funding for Lending Scheme has helped lenders to cut mortgage rates causing a further modest improvement in affordability over the past year despite the modest rise in house prices nationally.
"The favourable mortgage affordability position is a boost for both those who already have a mortgage and those who are able to raise the required deposit to buy a home. Improved mortgage affordability has been a key factor supporting housing demand and is helping to stimulate the modest recovery that we are currently seeing.
"Significant numbers of would-be home-buyers and movers remain unable to enter the market due to higher deposit requirements than a few years' ago and low, or negative, levels of housing equity. However, the recent figures showing 10,000 aspiring home-owners have already signed up to the Help to Buy scheme shows the potential of the Government backed schemes to continue to improve access to the market."
