Housing at its most affordable since 1997, says Halifax

House prices are at their most affordable since 1997 – for those who can get hold of mortgage finance, according to the latest affordability review from the Halifax.

Mortgage payments for new borrowers – both first time buyers and those moving home – were at their lowest as a proportion of disposable earnings for 14 years in the last six months of 2011, the research suggests. Typical mortgage payments at the long-term average loan to value ratio stood at 27 per cent of disposable earnings in the fourth quarter of 2011 – well below the average 37 per cent over the last27 years.

Overall, there was a modest fall in payments relative to earnings over the past year from 29 per cent in the last quarter of 2010.

“The falls in house prices and cuts in mortgage rates in the last few years have resulted in a significant improvement in housing affordability for those able to raise the necessary deposit to enter the market. Mortgage payments for a typical borrower are now at their lowest in proportion to earnings since 1997,” said Martin Ellis, a housing economist at Halifax.

“The market improvement in affordability was key factor supporting housing demand in 2011. The prospect of an exceptionally low Bank of England bank rate over the foreseeable future should maintain affordability at favourable levels in 2012. This should support the market over the coming 12 months, helping to offset the impact of the downward pressures on demand from the ongoing difficulties faced by households regarding their finances and uncertainty about economic prospects.”

According to the research:
•Mortgage payments have nearly halved as a proportion of income in recent years from a peak of 48 per cent in the third quarter of 2003. Lower house prices and reduced mortgage rates have been the main drivers behind this improvement in affordability
•The UK’s 12 regions have all experienced an improvement in affordability since mind-2007. Affordability is better than the long-term average in all regions
•Locally, lower house prices and mortgage rates have resulted in significant improvements in affordability in most local authority districts since 2007
•A clear north/south divide in affordability exists, notwithstanding the improvements experienced in all regions since 2007, the Halifax adds