Affordability for first-time buyers below 25 year average

In its latest First Time Buyer Affordability Review, Halifax has reported a significant improvement in the mortgage payments to earnings ratio.

For the average first-time buyer, mortgage repayments account for 31% of average income, down from a peak of 48% in 2007 and below the long-term average of 37% recorded over the past 25 years.

Furthermore, the house price to average earnings ratio is down 26% from a peak of 5.84 in July 2007, to an estimated 4.34 in March 2009.

The lender’s housing economist, Martin Ellis explains: “There has been a marked improvement in housing affordability for potential first-time buyers in many parts of the UK over the past 18 months. This trend continued in the first three months of 2009. The significant reductions in house prices, relative to average earnings, has resulted largely from the decline in house prices.”

However, first-time buyer numbers remain at very low levels, with figures from the Council of Mortgage lenders showing an annual fall of 46% in February.

According to Halifax, this is due to tighter lending criteria which has been reflected in “a much reduced availability in mortgages at high loan to value ratios”.

Mr Ellis concludes: “Conditions in the housing market are likely to be tough during the remainder of 2009 despite the improvements in affordability.”

He expects increasing unemployment, low consumer confidence and the turmoil in the financial markets to continue to put downward pressure on house prices during 2009 and advises prospective first-time buyers to factor this into their calculations.

The Halifax First-Time Buyer Affordability Review tracks housing affordability in 297 local authorities (including 31 London boroughs) across the UK.

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