More first-time buyers as mortgage affordability improves

There was a rise in the number of first-time buyers in 2011, thanks partly to the fact that mortgage borrowing rates were at their most affordable for 14 years, research shows.

The Halifax says that mortgage payments for a new borrower in the second half of 2011 were at their lowest as a proportion of disposable earnings for 14 years, due mainly to cheaper property prices and mortgage borrowing rates.

Typical mortgage payments for new homebuyers at the long-term average loan to value ratio were 27% of disposable earnings in the fourth quarter of 2011, significantly below the average of 37% recorded 27 years ago, and 29% in the fourth quarter of 2010.

The research suggests that mortgage payments have almost halved as a proportion of income in recent years from a peak of 48% in the third quarter of 2007.

Regions

The 12 UK regions have all experienced an improvement in affordability since mid-2007.

Average mortgage payments as a proportion of average disposable earnings for a new borrower fell two-thirds in Northern Ireland and have nearly halved in both Yorkshire and the Humber and Scotland.

Some 95% of local areas have seen a fall in mortgage payments as a proportion of average earnings of at least 25%.

A clear north / south divide in affordability exists despite and the improvements experienced in all regions since 2007.

Halifax said mortgage payments account for the lowest proportion of disposable earnings in Scotland (20%), Yorkshire and the Humber and Northern Ireland (both 21%).

Payments are highest in relation to earnings in Greater London (35%) and the South East (33%).

The ten most affordable local areas are all in northern Britain whilst the ten least affordable areas are all in the south.

Martin Ellis, housing economist at Halifax, said: "The falls in house prices and cuts in mortgage rates in the last few years have resulted in a significant improvement in housing affordability for those able to raise the necessary deposit to enter the market.

"The marked improvement in affordability was a key factor supporting housing demand in 2011 and the prospect of an exceptionally low Bank of England Bank Rate over the foreseeable future should maintain affordability at favourable levels in 2012."

First-time buyers

The latest Mortgage Monitor from e.surv suggests that first-time buyer numbers increased markedly last year banks upped their high loan-to-value lending and loosened qualifying criteria on higher loan-to-value mortgages.

There were 32% more loans with a deposit of 15% or under in 2011 than in 2010, as lending conditions for first time buyers improved.

There were 57,301 loans with a deposit of 15% or under in 2011, up from 43,379 in 2010, showing that more buyers with lower incomes were able to secure mortgages.

"The market has defied the wider problems that afflicted the economy in the latter half of last year. The improvement in 2011 is modest, but when taken against the backdrop of the eurozone crisis and turgid economic growth, it's clear the market demonstrated real staying power last year," said Richard Sexton, director of e.surv.

Prospective property purchasers looking to take advantage of historically low mortgage borrowing rates will find plenty of new homes to choose from nationwide.

There are added advantages for first-time buyers currently looking to buy a new home, with a number of housebuilder initiatives available to help cover the deposit on a new house or apartment, while the Government has introduced a mortgage indemnity scheme to help first-time buyers get on the property ladder.

More help needed

A new survey of 1,000 would-be homeowners, carried out by housebuilder Taylor Wimpey, found that despite the rise in first-time buyer activity, one in five Brits are still living with their parents more than a decade longer than they intended to as they struggle to get onto the property ladder.

Most would-be purchasers living with their parents simply cannot raise the money required to buy a new home, with the Bank of Mum and Dad firmly shut.

According to the study, 65% of parents said they simply did not have the spare funds to help their children with a deposit for a home, with nearly a quarter admitting that they were struggling enough to keep themselves afloat. One in 10 also felt that their children should be financially independent.