Affordability improves for first-time buyers

By Nicky Burridge,Pa
Sunday 03 January 2010 11:01

Property is now affordable for first-time buyers in nearly four out of 10 areas of the UK, research showed today.

The average first-time buyer property could now be bought by someone on average earnings in 39% of local authority districts, according to high street bank Halifax.

The situation is a marked improvement on 2007, the year in which house prices peaked, when homes in only 6% of areas could be bought by someone on average earnings.

Potential first-time buyers on average pay would need to have spent around 27% of their disposable income on mortgage payments in November 2009, almost half the 50% they would have spent on them in June 2007, and below the long-term average of 34%.

The improvement in affordability was brought about by a combination of lower interest rates and house price falls.

But many first-time buyers have been unable to take advantage of the situation due to the tighter lending criteria being employed by banks and building societies in the wake of the credit crunch.

Figures from the Council of Mortgage Lenders show that the average person buying their first home with a mortgage put down a deposit of 25% of their property's value for most of 2009.

However, there is some evidence that institutions are beginning to loosen their lending criteria, with a recent report from the Bank of England showing lenders had increased mortgage availability during the final quarter of 2009, particularly for those borrowing more than 75% of their home's value.

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."

The North East has seen the biggest increase in the proportion of local authority areas where property is affordable for first-time buyers, with the figure rising from just 6% to 94% between 2007 and 2009, followed by Yorkshire and the Humber with an increase from 6% to 81%.

But there has been no improvement in affordability in London and Northern Ireland during the period, with the average first-time buyer property remaining unaffordable for someone on average earnings in all local authorities in both regions.

The average price of a property bought by a first-time buyer was £133,794 during 2009 - 10% less than in 2008.

People taking their first step on to the property ladder borrowed an average of around £104,000 during the year, putting down a deposit of £29,439.

First-time buyers are most likely to buy terraced houses, with these accounting for 42% of all purchases, followed by semi-detached homes at 30% and flats and maisonettes at 21%.

Unsurprisingly, only 7% of people buying their first home purchased a detached property.

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