» Read the full story

Home affordability for potential first-time buyers has improved substantially since mid 2007, according to the latest Halifax survey into first-time buyers in the UK.

The lender found that in the first quarter of 2009, the average price paid by a first-time buyer was affordable for someone on average earnings in 21% of local authorities; compared to just 6% in the Autumn of 2007.

The house price to earnings ratio – a key affordability measure – is lower now than it has been for more than six years, according to Halifax. Further, the house price to average earnings ratio has declined from a peak of 5.84 in July 2007 to an estimated 4.34 in March 2009; a fall of 26%.

Martin Ellis, housing economist at Halifax, says: "There has been a marked improvement in housing affordability for potential first-time buyers in many parts of the UK over the past 18 months. The significant reductions in house prices, relative to average earnings, has resulted largely from the decline in house prices since the autumn of 2007. As a result, housing is at its most affordable, on this key measure, for more than six years."

Halifax has found that mortgage payments, relative to earnings, are now below the long-term average of 37% recorded over the past 25 years and stand at 31%. The problem is that the number of first-time buyers is at a very low level despite the improvement in affordability – the significant tightening in lending criteria has much reduced availability in mortgages at high loan to value ratios, preventing many potential first-time buyers entering the market.

Ellis says: "Conditions in the housing market are likely to be tough during the remainder of 2009 despite the improvements in affordability. Increasing unemployment, low consumer confidence and the constraining effects of the continuing dislocation of the financial markets on the availability of mortgage finance are all likely to exert downward pressure on the market over the coming months."

SOURCE: Halifax, 02/05/09

To Keep up with news and comments on the current adverse credit market please visit the Adverse Mortgage Blog.