Mortgage Advice Bureau's latest National Mortgage Index suggests that mortgage affordability is improving, despite ongoing increases in house prices in many areas of the UK.
Whilst house price growth remains moderate in many areas, key indicators of affordability in terms of mortgage payments include:
• Loan sizes for First Time Buyers, Buy-To-Let Landlords and those remortgaging are decreasing – this potentially reflects that those who are remortgaging (both home owners and Landlords) have accrued more value in their property, so they have more capital to offset against their remortgage amount, with First Time Buyers potentially seeing the cost of entry level properties decreasing
• First-time buyers are now younger – Mortgage Advice Bureau’s data suggests that the age of the average first-time buyer has now decreased from 32 to 29, potentially suggesting that more young people are able to take advantage of the low rates available to fund their first purchase
• Salaries for those who are moving home, remortgaging or are first-time buyers have increased – potentially suggesting that there are marginal but positive upwards movements on salaries
Brian Murphy, Head of Lending for Mortgage Advice Bureau comments, “According to recent data from the Halifax, mortgage payments now represent 30% of earnings in Q4 2016 vs 48% in Q3 2007. This reflects the fact that borrower’s debt servicing costs are significantly lower due to the current low-interest rate environment. This has counterbalanced house price growth over the last two or three years and has enabled those people who otherwise might have found it hard, if not impossible, to buy if interest rates were higher to either get on or trade up the property ladder.
If we look at typical mortgage rates in 2007, around the 6% level for a 2 year fixed rate product versus where we are now, with a typical 2-year fix costing around 2% and many significantly below this ultra-low level, we can see how mortgage affordability is improving.
The Halifax recently reported a slowdown in house price growth, which if this does develop into an ongoing trend, will help the market to consolidate. Sustained, significant increases in house prices create a bubble which, inevitably, prices too many would-be buyers out of the market. So in many respects, a calm and relatively flat market this year, both in terms of values and volumes of properties sold, would be met positively by many, particularly if both values and volumes seen in 2016 were replicated this year given the current political and economic climate.”
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