Print

Homes hit affordability low

It doesn't seem like long since watchdogs and industry observers were warning of overstretched finances, as large numbers of Britain's borrowers took out loans that they could scarcely afford. Yet, a few short months and a minor lull in the market later, and we are already hearing how first time buyers now spend a smaller proportion of their income on servicing their mortgage than they did at any point in the last decade.

This may seem rather odd given the constants surges in property prices that have been apparent over the last two or three years. Price falls of just a few percent over the last few months can hardly have changed the situation all that radically. And indeed, on closer inspection it is in fact the sharp falls in mortgage rates that have contributed most significantly to the newfound affordability that is being reported. Added to this, incomes have been rising at a significantly faster rate than inflation, meaning a decreasing proportion of pre-tax income is being spent on mortgage repayments.

Barry Naisbitt, Abbey National chief economist said: "The average first time UK buyer paid 14.1% of income on mortgage payments in the third quarter of 2001 compared with 15.6% in 2000 and 18.7% a decade ago."

In the South East, the percentage has fallen to 14.9% from 20.1% a decade earlier, while East Anglia saw a fall to 13.5% from 19.3% and Northern Ireland and Scotland saw only small changes in affordability.

However, the statistics don't necessarily tell the whole story. Just ask the hundreds of thousands of key workers in London whether or not they feel that property has all of a sudden become more affordable. Such a question would no doubt be met with a reply to the negative. And to make matters worse, Abbey National said that properties are expected to become less affordable next year, as interest rates are set to bounce back fairly sharply.