First time buyer mortgages more affordable than in 2007, says Halifax

06 May 2009 / by Rachael Stiles
Falling house prices and interest rates, coupled with higher earnings, mean it is now more affordable for first time buyers to get a mortgage than it was in 2007.

The latest Halifax First Time Buyer Affordability Review has found that mortgage payments, relative to earnings, have fallen below the 37 per cent average – where it has stood for the past 25 years – and now account for 31 per cent of the average first time buyer's income.

The proportion of disposable income used to meet mortgage payments has also fallen, from 48 per cent at the peak of the most recent housing boom in 2007, to 31 per cent in the first quarter of 2009.

House prices to earning ratio – another affordability measure – has fallen 26 per cent to its lowest level for six years, to 4.34 from its peak of 5.84.

"There has been a marked improvement in housing affordability for potential first-time buyers in many parts of the UK over the past 18 months," commented Martin Ellis, housing economist at Halifax. "This trend continued in the first three months of 2009.

"The significant reductions in house prices, relative to average earnings, has resulted largely from the decline in house prices since the autumn of 2007. As a result, housing is at its most affordable, on this key measure, for more than six years."

But, despite the higher level of affordability for first time buyers, the number entering the market has fallen markedly in the same period, plummeting 46 per cent between February 2008 and 2009, according to the latest figures from the Council of Mortgage Lenders (CML).

While it has become more affordable to get on the property ladder, first time buyer mortgages have become harder to obtain due to tighter lending criteria, such as mortgage lenders demanding higher deposits from their customers.

Even though house prices have fallen significantly, and lenders are offering more competitive interest rates to those not requiring high loan to value (LTV) mortgages, other factors are at work, which continue to restrict the market.

Mr Ellis continued: "Conditions in the housing market are likely to be tough during the remainder of 2009 despite the improvements in affordability. Increasing unemployment, low consumer confidence and the constraining effects of the continuing dislocation of the financial markets on the availability of mortgage finance are all likely to exert downward pressure on the market over the coming months. House prices are expected to decline again in 2009.

"Prospective first-time buyers should factor the likelihood of further house price falls into their calculations when deciding whether or not to buy," he added.

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