According to new research from Halifax, the proportion of disposable earnings devoted to mortgage payments - a key affordability measure - is at its most favourable for 12 years. The Halifax Affordability Review tracks housing affordability for all homebuyers in 382 local authority districts (including 32 London boroughs) across the UK, and found that mortgage payments are at their lowest since 1999.
Nationally, typical mortgage payments for a new borrower - both first-time buyers and home-movers - stood at 28 percent in the second quarter of 2011: the lowest level since 1999, and down by almost half from a peak of 48 percent of average disposable earnings in 2007 Quarter 3.
Lower house prices and reduced mortgage rates - which have fallen since 2007 from an average of 5.84 percent to 3.85 percent - have been the main drivers behind the significant improvement in affordability. However, the average deposit put down by buyers has increased over the same period from 20 percent of the property value in 2007 Quarter 3 to 25 percent in 2011 Quarter 2.
All 12 regions in the review have experienced an improvement in affordability since mid 2007 with affordability better than the long-term average in all regions. The most substantial percentage falls in average mortgage payments as a proportion of average disposable earnings have been in Northern Ireland (-62 percent) and Wales (-45 percent).
Locally, the fall in house prices and mortgage rates have also led to improvements in affordability in all local authority districts since 2007. Sixteen areas have recorded an improvement of 50 percent or more. The overwhelming majority - 94 percent - have seen a fall in mortgage payments as a proportion of average earnings of at least 25 percent.
Martin Ellis, housing economist at Halifax, commented:
"Housing is now at its most affordable for 12 years, and mortgage payments for a typical new borrower, compared to average earnings, are now comfortably below the long-term average.The improvement in affordability has been an important factor supporting housing demand this year.
"With the prospect of continuing low rates for some time yet, affordability is likely to remain favourable. These affordability gains, together with a slowly improving economy, should help to support demand in the face of pressures from weak earnings growth, relatively high inflation and higher taxes."
Mortgage payments account for the lowest proportion of disposable earnings in Scotland (22 percent), Yorkshire & the Humber (23 percent) and the North West (23 percent).
Six of the ten most affordable local authority districts are in Scotland, while Kensington and Chelsea is the least affordable local authority district in the country with average mortgage payments on a new loan accounting for 75 percent of average local earnings.