Recent figures have suggested that mortgage payments as a proportion of disposable earnings are at a 15 year low for new borrowers. The calculations from Halifax looked at the typical mortgage payments for someone purchasing a new home and found that, in the second quarter of 2012, they represented just 26% of disposable earnings.
That figure has been steadily falling and have nearly halved since the peak of the third quarter of 2007, when payments represented 48% of disposable earnings and below the long term average of 36%. These improving numbers have been driven by two factors in recent years.
Firstly the Bank of England Base Rate remains at a record low and mortgage rates have also been improving recently, clearly helping to reduce the proportionate burden on borrowers’ income.
Secondly, house prices have generally been stagnant at best and will have fallen in many areas. That will result in mortgages becoming more affordable from the peak of the market, when homebuyers were stretching to keep up with rocketing house prices.
These figures therefore highlight some of the positive aspects for today’s homebuyers. However it has to be read in the context of the need for bigger deposits in order to be able to access the rockbottom mortgage rates. The long term average loan to value has been used to give a consistent measure and this stands at 70% of the purchase price.
Being able to raise the big deposits remains the challenge for many, especially first time buyers. That helps to explain why the housing market remains comparatively slow despite the very attractive affordability figures.
However, these numbers do show the competitive rates that are on offer to borrowers, especially those with a good chunk of equity.