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First-time buyer affordability at 25-year high

Monday 4th January 2010

Housing has become affordable for first-time buyers for those on average earnings in four out of ten areas and afffordability is currently sitting at a 25-year high.

According to this year's Halifax First-Time Buyer Annual Review, in 2007, only six per cent of areas were affordable compared with a quarter between 2008 and 2009.

The proportion of income spent on mortgage payments has tumbled from a peak of 50 per cent in June 2007 to 27 per cent in November 2009.

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

The tightening in lending criteria since the summer of 2007 though has continue to be too big an obstacle for many FTB s who have been unable to enter the market despite the marked improvement in affordability.

However, there is also evidence of increased mortgage availability. The number of live mortgage products has risen by 33 per cent from a low of 1,209 in April 2009 to 1,610 in December.

The number of FTBs increased by an estimated 32 per cent between the second half of 2008 and the same period in 2009, from 84,000 to around 111,000. A weak first half of the year, however, meant that the total for 2009 was four per cent lower than in 2008, at an estimated 185,000 compared with 193,600.

FTBs accounted for an estimated 38 per cent of all mortgage borrowers in 2009. This proportion is unchanged from 2008, but was higher than the 35 per cent recorded in 2007.

The average price paid by an FTB in 2009 was 10 per cent lower than in 2008, at GBP 133,794, despite an increase in the prices paid by FTBs during recent months.

FTBs put down an average deposit of GBP 29,439 in 2009, equivalent to 22 per cent of the property price. FTBs in Greater London put down the largest deposit at GBP 53,932 or 25 per cent of the value of the property. FTBs in the North put down the smallest deposit, at GBP16,860 or 18 per cent of the value.

The average mortgage for a new FTB in 2009 was GBP 104,000. This was 14 per cent lower than in 2008 (GBP 122,000). The monthly mortgage payment for an average loan in 2009 was GBP 562, which is 27 per cent lower than the average monthly mortgage payment of GBP 768 in 2008.

The average age of a FTB has risen from 29 in 2008 to 30 years old in 2009. Recent research has found that increasing numbers of FTBs have been receiving financial assistance to raise funds for a deposit. The latest estimates indicate that around 80 per cent of FTB s are getting such help. The CML estimates that the average age of those FTBs who have not had financial assistance has risen sharply from around 33 in late 2007 to 36 now.

Nationally, FTBs buy more terraced homes than any other property type, with this property type accounting for 42 per cent of all FTB purchases in 2009. The second most popular property type with FTBs is semi-detached properties (30%) followed by flats and maisonettes (21%). Unsurprisingly, few FTBs (7%) purchase a detached property.

Halifax reported some marked regional differences in the type of properties that FTBs buy. FTBs in London and Scotland are most likely to buy a flat, accounting for nearly one in two home purchases in both areas. In contrast, flats account for one in 20 purchases by FTBs in Yorkshire and the Humber and the East Midlands.

There has been a substantial shift in the type of properties bought by FTBs between 2007 and 2009. In 2007, 37 per cent of FTBs bought flats and a further 37 per cent purchased terraces. The proportion of flats bought has since fallen sharply, to 21 per cent in 2009. Purchases of semi-detached homes have risen from 21 per cent to 30 per cent and the purchase of terraces has increased from 37 per cent to 42 per cent over the two years.

Nearly three in ten (27 per cent) FTBs are thought to have paid no Stamp Duty on home purchases made between September 2008 and November 2009 as a result of the raising of the nil rate threshold.

Less than one in five FTB purchases during this period were above the temporarily higher threshold of GBP 175,000. The proportion of FTBs in the UK that would have paid stamp duty if the threshold had been GBP 125,000 is estimated to be 44 per cent.

Martin Ellis, housing economist at Halifax, said: "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. The tightening in lending criteria over the past two years is, however, making it very difficult for some to take advantage of lower property prices and mortgage rates."

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