At the height of the financial crisis, mortgage payments deprived new borrowers of 48% of their disposable income. This was the case in the third quarter of 2007, but almost five years on, in the final quarter of 2012, the average household spent just 28% of its after-tax income on the monthly mortgage bill.
The dramatic drop means that typical households are being left with more of their disposable income than at any time since 2002.
According to recent analysis by Halifax, the combination of lower house prices and reduced borrowing rates has resulted in the cheapest mortgages in a decade.
Martin Ellis, Halifax’s housing economist, said: “Mortgage affordability has improved significantly over the past few years as a result of falls in house prices and cuts in mortgage rates”.
Indeed, house prices are 10% below the pre-crisis peak of 2007, and according to the Bank of England, average mortgage rates are near record lows of 3.38%.
This means that monthly mortgage repayments would be £580 – a relatively modest bite out of the average monthly after-tax wage of £2,062.
And with banks looking to take advantage of the government’s £80bn Funding for Lending scheme, which is designed to increase availability of cheap credit to borrowers, deals are expected to get bigger and better over the next few months.
However, Mr Ellis warned that first-time buyers will still face obstacles in their bid to get onto the property ladder.
“The favourable mortgage affordability position is a boost for those who already have a mortgage and those who are able to raise the required deposit to buy a home,” he said.
“Higher deposit requirements and low, or negative, levels of housing equity for many home owners mean that significant numbers of would-be buyers and movers remain unable to enter the market”.