Improved affordability proves less constraining for first-time buyers

Research from the Halifax reveals that today, monthly mortgage payments as a percentage of income are nearly half that of the level of 2007.  In contrast, over half of first-time buyers say that affordability is the main reason why they have not stepped onto the property ladder.  The numbers of first-time buyers in the first half of 2010, at 94,600, are half that of the same period for 2007, but have increased by 28% against the same period last year.

The combination of lower house prices and interest rate reductions to historically low levels has created a marked improvement in monthly costs for those buyers wanting to take their first steps onto the property ladder.  Indeed, the proportion of a typical new homeowner's disposable earnings devoted to mortgage payments has almost halved from a peak of 50% in June 2007 to 28% in June 2010; below the 34% average over the past 25 years.  In addition to this, 94% of first-time property purchases are now exempt from stamp duty, with 54% of first-time buyers saying that is has helped them to purchase their home.

Despite the marked improvement in monthly affordability, tightening in lending criteria since the onset of the credit crunch in 2007 may have deterred first-buyers from trying to secure mortgage finance, there are now indications that the environment is improving.  Only 3% of first-time buyers say a lack of suitable mortgage products has prevented them buying a home and eight out of ten first-time buyer mortgages are approved.  Whilst deposits in loan to value terms increased during 2008, the average deposit put down by a first-time buyer today has been unchanged as a percentage of purchase price since early in 2009.

Stephen Noakes, commercial director for mortgages, commented: "We believe it's important that first-time buyers understand that whilst there are still challenges in raising deposits, other market conditions are more positive.  Affordability has significantly improved, meaning the amount of a typical first-time buyer's monthly pay packet that needs to be dedicated to their mortgage is now below the 25 year average and importantly, despite perceptions, eight out of ten first-time buyer mortgages are approved."