Are Mortgages More Affordable Than Ever?

Mortgage payments in the UK now comprise 27 per cent of average incomes.

In the UK mortgage market recent research is suggesting that mortgages are now more affordable than at any time since the 1990s. To an extent this is due to the government schemes to encourage more affordable lending such as Funding For Lending and Help to Buy. These schemes have either had the effect of making interest rates fall or have made it easier for first time buyers to secure a mortgage by helping with the level of deposit required. How affordability of a mortgage is determined is by looking at what percentage of income it constitutes on average across the country.

The study by Halifax, which is part of Lloyds Banking Group, showed that mortgage payments comprise 27 per cent of average incomes and in London comprise 36 per cent of income. By contrast, in 2007, 48 per cent of the average income was going towards paying the mortgage, although perhaps such a comparison is unbalanced as mortgages were much easier to obtain pre-credit crunch. Nevertheless, lower interest rates on home loans and falling house prices in many parts of the UK have made mortgages more affordable.

This change has happened gradually since the peak in house prices in 2008 and, not surprisingly, varies significantly across the country as house prices vary.Where house prices have not fallen or where, like in the prime residential areas of London, they have actually risen despite the recession, the very low interest rates have offset this effect. In Greater London the average borrowers is spending 36 per cent of their income on home loanrepayments but that figure falls toa low 19 per cent in Scotland.

In Northern Ireland mortgages were even more affordable as a proportion of income at a mere 17 per cent, with south-east England borrowers paying 34 per cent of income and Welsh borrowers 27 per cent of income. Figures varied even within these broader areas and in some parts of London mortgage payments comprised 53 per cent of income while in East Ayrshire in Scotland and Omagh in Northern Ireland mortgages were the most affordable at 14.7 per cent of earnings.

Mortgage affordability is a sign that the property market is no longer in a slump in many areas, especially when combined with increasing numbers of new homes being built and increasing numbers of first-time buyers entering the property market.

With home loan interest rates at all-time lows it is not surprising that home owners are benefiting from their mortgages being more affordable than in a long time. Affordability has improved significantly in some traditionally expensive parts of the UK such as London and the South East but with the expectation that interest rates will rise within a few years these very affordable levels are not likely to continue for the long term. Anyone looking to benefit from low mortgage rates would do well to consider a long term fixed rate deal or talk to a mortgage adviser if they want to protect themselves against rate rises and keep their large mortgage as affordable as it is now.

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