UK mortgages at their cheapest since 1999

19th August 2013

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UK home loans are now at their most affordable for some 14 years according to Halifax writes Philip Scott.

Mortgage affordability is at its most favourable since 1999, with mortgage payments now accounting for 27 per cent of a new borrower’s income in 2013, comfortably below the average of 36 per cent recorded over the past 30 years according to Halifax research.

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 ratio falling from 28 per cent of disposable earnings in the second quarter of 2012 to 27 per cent in 2013 says the firm.

In addition, 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 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 per cent), Scotland (19 per cent), Yorkshire and the Humber (22 per cent) and the North West (23 per cent).

Payments are highest in relation to earnings in Greater London (36 per cent), the South East (34 per cent) and the South West (32 per cent). 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 says: “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.”

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