Improved affordability helps lower income borrowers

Robyn Hall

April 28, 2015

The findings suggest that improved mortgage affordability is helping those with lower incomes to climb the property ladder.

The typical primary income for a borrower in March was £38,159: 2.9% lower than February and the lowest average salary seen by the Index since November 2012 (£36,807).

This fall in average salaries came as the typical deposit put forward for house purchase hit a twelve month low. The average deposit in March was £68,877, down by 3.2% compared to the previous month (£71,169) and the lowest figure recorded since March 2014. This comes despite a 0.4% increase in average UK house prices in the same month.

Low deposits were accompanied by rising loan-to-values: the average LTV was 70.3% in March, up from 69.4% in February. Figures from the Bank of England suggest that lenders’ willingness to lend to borrowers with high LTV ratios (above 90%) increased for the first time in nine months in Q1 2015, providing further help for low income borrowers with small deposits.

Brian Murphy, head of mortgage lending at Mortgage Advice Bureau, said: “Record low mortgage rates have been hitting the headlines for several months now, but affordability has been improving in other areas too, with improved access to mortgage finance for lower income borrowers. House price growth has moderated in 2015 so far, and average loan-to-values are slowly creeping up, making deposit requirements less strenuous.

“A rise in average LTVs is always welcome for borrowers. Not so long ago, 90% mortgages were seen as a normal part of a healthy, functioning market. It doesn’t mean that consumers are borrowing beyond their means because safeguards are in place to prevent this and all applicants are thoroughly stress-tested before their mortgage is approved.

“The seasonal slowdown in mortgage activity appears to be behind us as both purchase and remortgage applicants were out in force in March – despite speculation that pre-election jitters could dampen the housing market. However, prospects for long-term growth could be derailed if affordability declines thanks to a shortage of properties coming on to the market. This is why addressing insufficient housebuilding must be a political priority – regardless of who is elected in May.”

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