C&G release Housing Affordability Index

Amanda Jarvis

May 2, 2006

The quarterly index – which takes into account house prices, earnings, interest rates and tax – reveals that affordability has improved significantly in recent months.

The amount of money now needed for a mortgage on an averagely priced home, per £100 of average take-home pay, is £47.62, down from £48.98 in the previous survey.

The fall follows four consecutive quarters when the index showed remarkably consistent stability, having climbed sharply (i.e. affordability deteriorated) between 2002 and the latter part of 2003.

On a regional basis, there is still a clear North-South divide, although the gap has narrowed in the last two years. The South East (£57.43) remains the least affordable area in the UK, followed by the South West (£55.53), the East (£53.16) and London (£52.15).

The Northern regions are far more affordable, with Scotland (£35.43) leading the way, ahead of the North East (£38.54), Yorkshire & Humber (£40.74) and North West (£40.43).

Commenting on the overall fall in the index, Jon Pain, managing director of Cheltenham & Gloucester, said: “Rising income, the base rate cut in August and almost flat house prices in the third quarter of 2005 have significantly improved affordability in recent months.

“This is clearly a bit of a relief for first-time buyers, who have struggled with the rapid house price inflation we have seen in recent years. Nevertheless, we are still urging new borrowers to ensure they consider all relevant costs when buying a home, and to ask whether the stability of a longer-term rate might be more beneficial than a discounted short-term loan.

“These borrowers need help, however. Lenders will need to be increasingly innovative to find alternative ways of prudently helping first-time buyers overcome the barriers of getting a foot on the housing ladder – and the Government needs to play its part in increasing supply and reducing the tax burden on them.”

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