Published at 14:07, Friday, 31 August 2012

Mortgage payments for new borrowers are at their lowest as a proportion of disposable earnings for 15 years, according to a bank study.

Typical payments for both first-time buyers and home movers taking out a new loan stood at 26 per cent of take-home pay in the second quarter of this year, Halifax said.

Affordability has significantly improved in each of the UK’s 12 regions since 2007 and typical mortgage payments as a proportion of earnings have seen the biggest falls in Northern Ireland, where they have dropped by around two thirds.

Payments have nearly halved in Wales, Yorkshire and the Humber, and Scotland since the peak of the market five years ago, according to the findings.

The study put the increased affordability down to static and falling house prices coupled with low mortgage rates by long-term standards as the Bank of England maintains the base rate at a historic 0.5 per cent low.

The 10 most affordable areas are all in Scotland, with potential mortgage payments in East Ayrshire standing at around 15 per cent of disposable earnings.

London and the south east dominate the least affordable areas. Overall, mortgage payments have nearly halved as a proportion of income over the past five years from a peak of 48 per cent seen in the autumn of 2007.

Halifax said low interest rates have been a “key factor” to supporting the housing market and the prospect of them continuing will help to keep house prices steady for the rest of the year. Despite the increases found in affordability for a potential new borrower entering the market, would-be borrowers are facing a tougher time trying to take out a mortgage in the first place, as lenders have tightened their borrowing criteria amid the weak economy.

Mortgage approvals slumped to a 15-year low in June, according to recent figures from the British Bankers’ Association.

More than a million home owners also saw their mortgage payments increase in May, as Britain’s biggest mortgage lender Halifax was one of a string of lenders to raise its standard variable rate (SVR), blaming the increased cost of funding a mortgage.

Comparison website MoneySupermarket also said last week that the range of mortgages for first-time buyers and people with deposits of 10 per cent or less has shrunk significantly over the last six months.

Martin Ellis, housing economist at Halifax, said: “Lower house prices and reduced mortgage rates have led to a significant improvement in housing affordability for those able to fund the necessary deposit to enter the market over the past five years.

“As a result, mortgage payments for a typical new borrower currently account for the lowest proportion of earnings for 15 years.

“The relatively low level of mortgage payments in relation to income is providing support for house prices.

“The prospect of interest rates remaining at low levels for some time yet is expected to continue to be a key factor supporting the demand for homes, helping to keep house prices around their current level during the remainder of 2012.”

Published by http://www.cumberlandnews.co.uk