The proportion of local authorities in the UK where housing is affordable for a FTB has more than trebled since 2007. In the first quarter of 2009, the average price paid by an FTB was affordable for someone on average earnings in 21 per cent of local authorities; compared to just six per cent in 2007 quarter three.
The house price to earnings ratio – a key affordability measure – is lower now than it has been for more than six years. Further, the house price to average earnings ratio has declined from a peak of 5.84 in July 2007 to an estimated 4.34 in March 2009; a fall of 26 per cent.
The proportion of disposable earnings devoted to mortgage payments – another affordability measure that includes the impact of interest rate changes – has also fallen significantly due to the combination of the decline in house prices and the cut in interest rates to record lows (from a peak of 48 per cent in 2007 to 31 per cent in 2009 quarter one).
Martin Ellis, housing economist at Halifax, commented: ”There has been a marked improvement in housing affordability for potential first-time buyers in many parts of the UK over the past 18 months. This trend continued in the first three months of 2009. The significant reductions in house prices, relative to average earnings, has resulted largely from the decline in house prices since the autumn of 2007. As a result, housing is at its most affordable, on this key measure, for more than six years.
“Conditions in the housing market are likely to be tough during the remainder of 2009 despite the improvements in affordability. Increasing unemployment, low consumer confidence and the constraining effects of the continuing dislocation of the financial markets on the availability of mortgage finance are all likely to exert downward pressure on the market over the coming months. House prices are expected to decline again in 2009. Prospective first-time buyers should factor the likelihood of further house price falls into their calculations when deciding whether or not to buy.”
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