Affordable house prices for first-time buyers in some areas

A new study by the Halifax First-Time Buyer Annual Review 2009 has shown that the average price paid by a first-time house buyer was affordable for someone earning average income in nearly four or 39 percent in ten of local authority districts.

The figure marked a significant improvement compared with 2007 when only six percent of areas were affordable. Nearly a quarter or 24 percent of local authority areas became affordable between 2008 and 2009.

Martin Ellis, housing economist at Halifax, commented, “Housing affordability for potential first-time buyers has improved substantially over the past two years due to the combination of lower house prices and reduced mortgage rates. Mortgage payments in relation to earnings are currently significantly below the average during the past 25 years.”

Ellis said the changes in lending criteria over the past two years has made it very difficult for some to take advantage of lower property prices and mortgage rates.

The proportion of disposable earnings devoted to mortgage payments by a potential new FTB on national average earnings – a measure of affordability that includes the impact of interest rate changes – has almost halved from a peak of 50 percent in June 2007 to 27 percent in November 2009.

This improvement in affordability has been a result of the combination of lower house prices and interest rate reductions. The current level is below the average over the past 25 years of 34%.

Because of the tightening of the rules in lending criteria since 2007, many potential first-time buyers (FTBs) have been unable to enter the market despite the marked improvement in affordability.

However, there are signs that the lending criteria has been relaxed in the past months. For example, industry-wide figures show that the average deposit put down by a FTB has been unchanged as a percentage of the purchase price since early in 2009 following a significant increase in 2008. There is also evidence of increased mortgage availability. The number of live mortgage products has risen by 33 percent from a low of 1,209 in April 2009 to 1,610 in December 2 this year.