Mortgage affordability actually on the rise for first-time buyers

Mortgage Matters

Franz Muehlthaler, mortgage adviser, Holroyd Miller Properties

I’m concerned that the cost of living is continuing to rise and my chances of gaining approval for a mortgage are slipping away under the affordability rules.

There’s some good news concerning affordability. Mortgage affordability is actually increasing not decreasing, as the average income required to secure a mortgage reduces by over eight per cent. The latest data from Mortgage Advice Bureau highlights the increasing affordability of mortgages for first-time buyers, home movers and those who are remortgaging.

As of December 2016, the average incomes for those applying to borrow for a home purchase or a remortgage have fallen annually by 8.13 per cent and 8.9 per cent respectively.

This suggests that more households are now able to borrow to either buy their next property or refinance their existing home than previously.

The probable reasons for this positive emerging trend include record low interest rates. Sustained intense competition within the provision of lending products and pricing has ensured interest rates have remained at or around record lows. Lender flexibility also plays a part. Lenders continue to ensure affordability at all costs, however some easing of criteria and improved affordability assessments has resulted in potentially more borrowers getting access to mortgage finance.

Brian Murphy, Head of Lending for Mortgage Advice Bureau says: “When we look at the downwards movements in salaries, e.g. for first-time buyers, remortgage and home mover purchases, this perhaps indicates that lenders are being slightly more flexible and accommodating in terms of salary multiples.

“Mortgage rates are lower than they were 12 months ago, therefore affordability has improved, meaning that salaries don’t need to be as high as they were a year ago in order to borrow the amounts required by consumers, and this may be reflected in the slight downwards movements in average salaries.”

Overall activity was still strong in December, considering seasonal factors and overall political and economic climate. It was interesting to see that overall housing transaction levels for 2016 were steady at just over 1.2m, a slight increase on volumes in 2014 and 2015, as noted in the latest HMRC residential transaction data.

Last year saw several new lender brands enter the market, which has triggered an even more competitive interest rate environment, meaning that every type of borrower has benefited from lower rates, particularly since the interest rate cut in August.

However, as there has been some upward pressure on Swaps, it’s possible in 2017 we may see some upward movement in terms of fixed rate pricing, but with competition intense, many lenders may be prepared to sacrifice margin to maintain volumes and market share.

With regards the average buy-to-let purchase price, a downward movement is to be expected, as lenders applied the latest PRA rental stress test calculations in December.

This led to some landlords being priced out of the more expensive areas due to not being able to meet income coverage ratio criteria, meaning that they have purchased in cheaper areas.

In terms of the monthly fall of the average first-time buyer purchase price, this is likely to be as a result of seasonality and the fact that vendors have offered first-time buyer a reduction.

Franz Muehlthaleris a mortgage adviser with Holroyd Miller Properties in association with Reach 4 Mortgage Solutions and the Mortgage Advice Bureau.