The bank has released figures which show that properties are more affordable today than they were a year ago, wherever you live in the UK, and are much more affordable than ten years ago. The bank defines affordability as the share of pre-tax income spent on mortgage payments.
Barry Naisbitt, Abbey National's chief economist, says: "With house price growth having again reached double figures, people may think it’s going to be more difficult to buy a home. This is actually not the case, as rising incomes and falling interest rates outweigh the effect of higher house prices, making buying a house more affordable."
Naisbitt adds: "Over the past month, there have been some signs that the rapid pace of house price growth is starting to slow, and we expect it to reduce from its current 11 per cent to average in the 3–5 per cent range for the year ahead. However, this doesn’t mean bad news for the housing market. If prices rise too rapidly for too long, potential buyers risk being priced out of the market and, as we saw in the late 1980s, an unsustainable price ‘bubble’ can build.
"In contrast, a healthy housing market is one in which buyers can afford properties without over-stretching themselves and sellers can sell their homes without undue delay. Affordability is a key factor in determining the health of the housing market.
"For the country as a whole in the third quarter of 2001, an average first-time buyer paid 14.1 per cent of income on mortgage payments. This compares favourably with 15.6 per cent for the same period in 2000 and almost 19 per cent a decade ago. Affordability varies considerably across the regions, with average first-time buyers in Scotland spending over 3 per cent less of income on mortgage payments than their counterparts in Greater London. Despite this differential, a first-time buyer in Greater London is now spending almost 2 per cent less of his or her income on mortgage payments than a year ago, and 5 per cent less of income than a decade ago. This improvement in affordability has definitely contributed to the strength of the housing market this year."
