Scottish housing is most affordable in UK
The typical Scottish borrower now spends just 22 per cent of their average disposable earnings on their home loan, down from 38 per cent in 2007, Bank of Scotland research shows.
Mortgage payments account for a smaller proportion of average earnings in Scotland than anywhere else in the UK. The UK average of 28 per cent is pushed up by higher costs in London and the south east of England, where borrowers typically spend more than a third of their take home pay on their mortgage.
The improvement in affordability is due to a combination of lower house prices and mortgage rates and the bigger deposits being put down by buyers. The average mortgage rate has dropped from 5.98 to 3.85 per cent since 2007, while buyers are now paying an average deposit of 26 per cent, up from 20 per cent four years ago, Bank of England figures show.
Scotland boasts six of the ten most affordable areas in the UK, headed by East Ayrshire, where just 17.7 per cent of average disposable earnings is eaten up by mortgage payments. Borrowers in nine other Scottish authority areas spend less than a fifth of their net earnings on their loan, on average.
But the picture varies significantly across Scotland. Edinburgh, where mortgage payments take up 29 per cent of average disposable earnings, is the least affordable area, with the average mortgage in five other areas soaking up more than a quarter of take home pay.
Martin Ellis, housing economist at Bank of Scotland, said: “Lower house prices and reduced mortgage rates have resulted in a substantial improvement in housing affordability since the peak of the housing market in 2007. Mortgage payments for a typical new borrower as a proportion of average earnings are now broadly in line with levels last seen in 2003 and are comfortably below the long-term average.”
That improvement has played a key role in supporting housing demand and house prices in recent months, Mr Ellis said.
“With the prospect of continuing low rates for some time yet, affordability is likely to remain favourable. These affordability gains, together with a slowly improving economy, should help support demand in the face of pressures from weak earnings growth, relatively high inflation and higher taxes.”
But greater affordability is no consolation for the would-be buyers frozen out of the market by high deposit demands and tightened loan criteria. First-time buyers in Scotland took out 4,300 loans in the three months to the end of June, according to the Council of Mortgage Lenders, compared with 9,700 in the same period in 2007.
Dr John Boyle, head of research at Rettie & Co, said: “Improving affordability certainly provides a boost to the housing market, but there remains a lack of market confidence due to economic uncertainty and relatively high levels of inflation and unemployment. The still high loan to value ratios for mortgages also means that finding the deposit in order to get a mortgage remains a key problem.”