Mortgages cheapest since height of crisis

 By Philip Aldrick, Economics Editor

Reduced borrowing rates and lower house prices have combined to leave the average household with more of their after-tax income than at any time since 2002.

Mortgage payments absorbed 28pc of a new borrower’s disposable income in the final quarter of last year, according to analysis out today from Halifax, which is part of Britain’s biggest lender Lloyds Banking Group. At its peak in the third quarter of 2007, the proportion was 48pc.

“Mortgage affordability has improved significantly over the past few years as a result of falls in house prices and cuts in mortgage rates,” said Martin Ellis, Halifax’s housing economist. “This development has been a key factor supporting housing demand and is expected to remain so in 2013 as interest rates remain low.”

However, the cheap deals remain out of reach for many would-be homeowners due to the banks’ larger deposit requirements.

Average mortgage rates are near record lows of 3.38pc at the moment, according to the Bank of England, and house prices are 10pc below their 2007 pre-crisis peak. As a result monthly mortgage payments have fallen to just £580, which compares with the average monthly after-tax wage of £2,062, the Halifax said.

Deals are only expected to get cheaper in the coming months as lenders take advantage of the Bank of England’s Funding for Lending Scheme, which is designed to push cheap credit through to borrowers.

Yorkshire Building Society this week lowered its two-year fixed rate offer to 1.99pc following Nationwide’s move to a 2pc fix, while Mark Harris, chief executive of mortgage broker SPF Private Clients, said “two-year fixes could go as low as 1.5pc”.

However, the beneficiaries of the cheap deals are wealthier first time buyers or homemovers who survived the recession with large amounts of their equity intact.

“The favourable mortgage affordability position is a boost for both those who already have a mortgage and those who are able to raise the required deposit to buy a home,” Mr Ellis said. “Higher deposit requirements and low, or negative levels, of housing equity for many homeowners, mean that significant numbers of would-be home buyers and movers remain unable to enter the market.”

According to data from the Council for Mortgage Lenders, first time buyers currently have to put up a deposit of 20pc of the purchase price on average to qualify for a loan. In 2007, the average deposit was just 10pc, and between 1975 and 2007 it ranged from 4pc to 17pc.

Difficulties in accessing mortgage debt have caused a collapse in the number of first time buyers. In 2007, they numbered 359,900 and records going back to 1976 show that the annual total never fell below 300,000. Since 2008, however, first time buyer numbers have been below 200,000 – although they are expected to have crept above the threshold last year as the total after 11 months was 197,500.

The Halifax survey also found “a clear north/south divide”. Mortgages are most affordable in Northern Ireland, Scotland and Yorkshire and least affordable in London, the south west and the south east. The divide is roughly equivalent to regional differences in the housing market, with those areas that experienced the sharpest fall in prices now among the most affordable.

The London Borough of Camden is the most expensive local authority district, with mortgage payments absorbing 56.5pc of disposable incomes on average. Copeland in the north west was the most affordable, with mortgage costs accounting for just 14.9pc of after tax income. /Telegraph