Homes take a smaller slice of wages

PROPERTY in Scotland is at its most affordable levels in nearly five years, according to a new study of the housing market.

The review into the affordability of the nation's housing has found that the proportion of earnings new borrowers pay towards their mortgages has fallen significantly.

Whereas mortgage payments accounted for 37 per cent of average disposable income in 2007, the ratio stood at just 26 per cent in the first quarter of this year.

The inaugural Bank of Scotland affordability review found that in nearly half of Scotland's local authority areas, householders are paying 20 per cent less of their earnings for their homes.

Housing economists claim the trend points to a "marked improvement" in housing affordability, and experts have urged buyers to take advantage of such "favourable conditions".

However, the findings have been tempered by other new studies, which warn that the current economic climate has made it increasingly difficult for people to secure mortgages, with lending to first-time buyers with deposits of 5 per cent "practically non-existent".

The Bank of Scotland review, designed to measure the degree of difficulty faced by potential new homeowners entering the market, shows that the most affordable areas in the country are Renfrewshire and the Shetland Islands, where mortgage payments comprise just 23 per cent of earnings. The most expensive are Moray and Midlothian, where the figure stands at 34 per cent.

Martin Ellis, housing economist at Bank of Scotland, said: "There has been a marked improvement in housing affordability across Scotland over the past 18 months. The significant reduction in mortgage payments paid by a typical homebuyer has resulted largely from the combination of the decline in house prices and the cut in interest rates to record lows.

"Housing is at its most affordable for almost five years. Notably, mortgage repayments for a typical new borrower as a proportion of average earnings are now below the average for the past 25 years."

However, Mr Ellis stressed the improvements in affordability were offset by restricted mortgage finance, increasing unemployment, and low consumer confidence.

Scott Brown, estate agency partner at Warners, said that there was increasing evidence that house prices are "levelling out," meaning it is possible that property "will not become more affordable in the long term".

Two other reports released today also highlight the difficulties faced by first-time buyers in particular.

One, the Moneyextra.com mortgage index, shows the average loan-to-value for new homeowners is 71 per cent, compared to 82 per cent last year, while the supply of borrowing for first-time buyers with 10 per cent deposits has plummeted by 84 per cent over the past 12 months.

Richard Mason, a mortgage expert with Moneyextra, said: "It's a Catch 22 for first-time buyers, the depressed market means there are bargains to be had but it's difficult to get on the ladder without a good deposit."

The dilemma is echoed in Shelter's annual Roof Affordability Index. The housing charity found that the average price of a first home has fallen from a peak in 2007 of 111,768 to 96,835. However, it points out that the average deposit required has risen from 2,323 in 2000 to 19,367.

Graeme Brown, director of Shelter Scotland, said: "At a time when house prices are falling and interest rates are at historic lows, a new generation should be able to buy a house. Instead, a squeeze on lending is leaving people locked out of the housing market."