Mortgage repayments as a proportion of income are at their lowest level for 14 years, according to new research from the Halifax.
The Halifax Affordability Review looks at mortgage affordability across almost 400 local authority districts, including London.
It found mortgage affordability is at its most favourable since the second quarter in 1999, with mortgage payments accounting for 27 per cent of a new borrower’s income in the second quarter of 2013, compared to an average of 36 per cent over the last 30 years.
However, mortgage brokers believe rates may have bottomed out and are advising homeowners to take out a cheap fixed rate mortgage while they are at historical low levels.
The cost of a mortgage has fallen dramatically since the height of the property market before the credit crunch and financial crisis led the Bank of England to reduce base rate to 0.50 per cent in March 2009. Recent government initiatives to help first-time buyers such as the Funding for Lending Scheme and the Help to Buy scheme have also helped boost the number of new homeowners.
Craig McKinlay, Mortgage Director, Halifax said: “Substantial mortgage rate reductions and lower house prices have led to a significant improvement in mortgage affordability since the peak of the housing market six years’ ago.”
In the third quarter of 2007, the cost of a mortgage took up 48 per cent of the average household’s income. The Halifax confirmed that lower house prices and reduced mortgage rates have been the “main drivers behind the significant improvement in affordability”.
These improvements have been across all local authority districts since 2007 with 82 per cent of districts enjoying an improvement of at least a quarter and mortgage repayments in Northern Ireland dropping by 75 per cent.
However, there are some regional discrepancies, including a north/south divide which means mortgage payments as a proportion of disposable earnings are at their lowest in Northern Ireland at 17 per cent, Scotland at 19 per cent, Yorkshire and the Humber at 22 per cent and the North West at 23 per cent.
Scotland has seven of the ten most affordable local authority districts.
London has the highest ratio at 36 per cent, followed by the South East at 34 per cent and the South West at 32 per cent.
The research found that there has been continued modest improvements in mortgage affordability over the past year, down from 28 per cent to 27 per cent of disposable income in the second quarter of 2013.
However, mortgage brokers believe the low cost of servicing a mortgage may be reaching its peak with rates unlikely to go any lower.
Analysts are reporting increases in borrowing costs on the wholesale markets that give credit to lenders and traders are unsure about the commitment made last week by the Bank of England that base rate will not go up until the unemployment rate falls to 7.0 per cent, which the Bank expects to happen in 2016.
Mortgage brokers are urging homeowners to lock in to low fixed-rate deals.
Ray Boulger of John Charcol said: “I can see no point in borrowers waiting for rates to fall further. Swap rates are rising and Mark Carney’s attempt to engineer low rates over the medium term has clearly failed. There is no indication mortgage rates are going to suddenly shoot up, but they certainly will rise.