Mortgages at most affordable for 14 years

vivatifosi

Some good housing news for a change, from the BBC (original info from Halifax):

http://www.bbc.co.uk/news/business-23736707

Mortgages are at their most affordable for 14 years after lenders slashed their rates, a report has found.
The study by the Halifax said payments accounted for 27% of average incomes in the second quarter of 2013 compared with a high of 48% in 2007.....


....The average share of mortgage payments as a proportion of income for new borrowers over the past 30 years is 36%.
Mortgage payments for new borrowers were most affordable in Northern Ireland at 17% of income, followed by Scotland (19%), Yorkshire and the Humber (22%) and the North West (23%).
London was the highest at 36%, with the South East at 34% and the South West at 32%. The average in Wales was 27%.

wotsthat

People getting into the help to buy scheme early are going to do really well. 0% on 20% of the mortgage and record low long term fixes will take care of the rest.

Even the London crew are doing alright. New buyers are only paying 36% of income on the mortgage. London buyers are obviously well up the income scale and so will be insulated from rate rises.

thedalmeny

wotsthat wrote: »

People getting into the help to buy scheme early are going to do really well. 0% on 20% of the mortgage and record low long term fixes will take care of the rest.

Even the London crew are doing alright. New buyers are only paying 36% of income on the mortgage. London buyers are obviously well up the income scale and so will be insulated from rate rises.

Even better if you managed to secure the limited Halifax offer with stamp duty paid on Help To Buy.

Example of what i got;

- 3.59% 2 year fixed
- Stamp Duty Paid
- No arrangement fee
- £694.37 per month repayment
- £14844.88 total cost over 24 months.

Yorkshire building Society has the best mortgage rates i could find over fixed term, requires a 65% LTV.

- 1.66% 2 year fixed
- £975 arrangement fee
- £557.58 per month repayment
- £14356.92 total cost over 24 months.

Basically, Help To Buy is only £487.96 compared to the best possible mortgage on the market (That i could see) at 65% LTV.

If you look purely at 25% LTV mortgages, they're more expensive .

Generali

Managing the rise in interest rates will be very interesting. Both deflation and high inflation remain threats (6% inflation isn't high).

wotsthat

Generali wrote: »

Managing the rise in interest rates will be very interesting. Both deflation and high inflation remain threats (6% inflation isn't high).

Read that 85% of new mortgages are now fixed rate. Maybe house buyers being more cautious is a by-product of the financial crisis.

There will be plenty of moaning and groaning when rates rise but new borrowers since 2008 have been cherry picked and everyone else has had years to get themselves sorted out.

Interesting times lay ahead. I reckon the BoE wished they'd targeted 6% unemployment - they left themselves plenty of wriggle room to not increase rates at 7% unemployment but will lose credibility if they hold rates for an extended period after this. I'm almost looking forward to rates rising to see what happens; quite like to see some deflation too just to see if it's the 'nice' sort.

Generali

wotsthat wrote: »

Read that 85% of new mortgages are now fixed rate. Maybe house buyers being more cautious is a by-product of the financial crisis.

There will be plenty of moaning and groaning when rates rise but new borrowers since 2008 have been cherry picked and everyone else has had years to get themselves sorted out.

Part of the interesting bit will be what happens to bank solvency. Fixed rate assets (e.g. mortgages and Gilts/Government bonds) become worth less as interest rates rise and worth more as interest rates fall. Unfortunately, both these assets make up a chunk of bank reserves.

wotsthat wrote: »

Interesting times lay ahead. I reckon the BoE wished they'd targeted 6% unemployment - they left themselves plenty of wriggle room to not increase rates at 7% unemployment but will lose credibility if they hold rates for an extended period after this.

A lot of people talk about the credibility of the BoE/MPC.

My guess is that they don't give a flying fox about what you and I think about them or even what the Finance Editor of the FT or WSJ thinks. Remember, Central Bankers operate under completely different rules to everyone else. For example, it is considered normal and acceptable for the Chancellor or PM to lie in Parliament about what the BoE is up to.

wotsthat wrote: »

I'm almost looking forward to rates rising to see what happens; quite like to see some deflation too just to see if it's the 'nice' sort.

My feeling is that the time for 'nice deflation' (increased productivity causing falling prices and rising incomes) was in the 2000-2007 period. Since 2007 we were more likely to see 'bad deflation' (businesses forced to cut prices and thus unable to repay debts and going bust).

Now? I think falling prices would be more likely to be 'disinflation' than deflation. Deflation is still a risk however. The good news is that companies are generally carrying very little debt which reduces the risk of a 1930s-style deflation.

Time will tell.

thescouselander

All very misleading IMO. I'm sure the average mortgage is very affordable for people who bought a while back when prices were lower. The problem is for new entrants who, although they have access to low rates, must take out very large loans to support the exorbitant prices being asked. The use of average, affordability, even for new borrowers, doesn't tell the whole story as there will be a proportion of the new borrower market that can access a good deposit - it will be the ones with smaller deposits that will be the problem.

So in absolute terms I suspect mortgage repayments for many recent market entrants are no more affordable than they were before and it looks like long term affordability is only going to go one way (down)..

HAMISH_MCTAVISH

thescouselander wrote: »

All very misleading IMO.

The use of average, affordability, even for new borrowers, doesn't tell the whole story as there will be a proportion of the new borrower market that can access a good deposit - it will be the ones with smaller deposits that will be the problem.

The Halifax data is for new borrowers and uses the same deposit percentage over the entire series to eliminate variances in deposit levels skewing the data.

Thrugelmir

wotsthat wrote: »

Read that 85% of new mortgages are now fixed rate. Maybe house buyers being more cautious is a by-product of the financial crisis.

I'm sure there's a degree of nervousness. As no one is sure what the future holds. Expectations are that rates will move in 2015 possibly. With a new 25 mortgage there's many years to go for those taking out a mortgage now.

thescouselander

HAMISH_MCTAVISH wrote: »

The Halifax data is for new borrowers and uses the same deposit percentage over the entire series to eliminate variances in deposit levels skewing the data.

Yes, what does "new borrowers" mean exactly? Is this the same as FTBs - or just people who might be renewing their mortgages? Something funny going on with the English there.

HAMISH_MCTAVISH

thescouselander wrote: »

Yes, what does "new borrowers" mean exactly? Is this the same as FTBs - or just people who might be renewing their mortgages? Something funny going on with the English there.

In other words, you don't like the conclusion that buying is currently cheaper than at most times in history, so try to dispute the methodology.

Here's the Halifax info....

House Price Earnings Ratio

The house price earnings ratio is calculated by dividing the Halifax seasonally adjusted standardised average house price by average earnings.

The earnings data is a calculation based on the average earnings for Male Full Time employees from the ASHE survey at April each year. Subsequent quarters are estimated using the national average weekly earnings (KAI7) published by the ONS.

Mortgage to Earnings Ratio

The mortgage to earnings ratio is calculated using the Halifax standardised average house price (seasonally adjusted), average disposable earnings (calculated from average earnings for all full time employees (ASHE)) and the Bank of England monthly average rate for new advances to households (CFMBJ95).

Average mortgage payments for a new borrower - including both first time buyers and home movers - are calculated based on standardised average house prices and mortgage rates applicable to the period of calculation.

The national average loan to value over the period from 1983 to 2012 of 70% has been applied to the average standardised house price to calculate the average new mortgage. Mortgage payments include both capital and interest payments.

Mortgage payments are then calculated as a percentage of average disposable earnings (i.e. after deduction of income tax and employee's national insurance contributions).

The earnings data is a calculation based on the average earnings for All Full Time employees from the ASHE survey at April each year. Subsequent quarters are estimated using the national average weekly earnings (KAI7) published by the ONS.