In 2009, the average price paid by an FTB was affordable for someone on average earnings in nearly four in ten (39%) of local authority districts, according to this year's Halifax First-Time Buyer Annual Review. In 2007, only 6% of areas were affordable. Nearly a quarter (24%) of local authority areas became affordable between 2008 and 2009.
The proportion of disposable earnings devoted to mortgage payments by a potential new FTB on national average earnings - a measure of affordability that includes the impact of interest rate changes - has almost halved from a peak of 50% in June 2007 to 27% in November 2009. This improvement in affordability has been a result of the combination of lower house prices and interest rate reductions. The current level is below the average over the past 25 years of 34%.
The tightening in lending criteria since the summer of 2007 has meant that some potential FTBs have been unable to enter the market despite the marked improvement in affordability. There are, however, signs that lending criteria has stopped tightening. For example, industry-wide figures show that the average deposit put down by a FTB has been unchanged as a percentage of the purchase price since early in 2009 following a significant increase in 2008. There is also evidence of increased mortgage availability. The number of live mortgage products has risen by 33% from a low of 1,209 in April 2009 to 1,610 in December.
Martin Ellis, housing economist at Halifax, commented: "Housing affordability for potential first-time buyers has improved substantially over the past two years due to the combination of lower house prices and reduced mortgage rates. Mortgage payments in relation to earnings are currently significantly below the average during the past 25 years. The tightening in lending criteria over the past two years is, however, making it very difficult for some to take advantage of lower property prices and mortgage rates."