Affordability for new owners at best for decade, says bank

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SCOTLAND is the UK’s second most affordable place to own a home as the cost of mortgage repayments continues to fall, according to a report out today.

The proportion of take-home pay that Scots spend on mortgages has plummeted in recent years, the latest affordability review from Bank of Scotland shows. The average homeowner north of the Border spends 22 per cent of their disposable income on mortgage repayments, down from 38 per cent just five years ago.

The fall is a boost for first-time buyers seeking a foothold on the housing ladder, the bank claimed. However, a leading Scottish housing market expert warned that the report glosses over the main obstacle facing first-time buyers – the reluctance of lenders to provide more affordable loans for those with small deposits.

The average monthly mortgage repay­ment in Scotland is £424, while the typical take-home pay is £1,954 a month. Only in Northern Ireland do mortgage payments soak up less of the average monthly earnings (at 20 per cent), while they account for 36 and 35 per cent in London and west of England respectively.

Affordability for new borrowers – including home-movers and first-time buyers – is at its best for almost a decade, said the bank, which attributed the change to lower house prices and reduced mortgage rates.

Of the 10 most affordable areas in the UK, seven are in Scotland, led by West Dunbartonshire – where mortgage payments account for just 17.6 per cent of average local earnings – Renfrewshire and Ayrshire (both 17.9 per cent).

The least affordable local authorities are Aberdeenshire, Perth & Kinross and Edinburgh City. Borrowers in all three areas spend more than 27 per cent of their take-home pay on their home loans.

Nitesh Patel, housing economist at Bank of Scotland, said: “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.

“Higher deposit requirements and low, or negative levels, of housing equity for many homeowners, however, mean that significant numbers of would-be homebuyers and movers remain unable to enter the market.”

The main reason for that is the caution of lenders, according to Dr John Boyle, head of research at Rettie & Co.

He pointed out that improved affordability also reflects the bigger deposits being put down by buyers, enabling them to secure lower mortgage rates. But while those able to afford the average deposit – around 20 per cent – are benefiting from more affordable mortgages, those who cannot are still struggling.

The Bank of England’s funding for lending scheme (FLS), launched last August and giving lenders access to cheaper borrowing, has helped push mortgage costs down, Boyle added. “However, until the macroeconomic conditions in the market improve, it is difficult to see the caution of the banks lifting,” he warned.

But one trend will be being bucked on Monday with the launch of a new interest-only mortgage. Clydesdale Bank’s new three-year “low start mortgage” is launched in the wake of a mass exodus of lenders from the interest-only market.

The new Clydesdale loan allows borrowers to fix their mortgage on interest-only terms before moving onto the bank’s standard variable rate at the end of that period.