The website MoneyFacts.co.uk reported in February 2017 that mortgage affordability has dramatically improved in recent years.
A key part of the decision by a lender to approve a mortgage application is their assessment that the applicant will be able to afford the mortgage repayments.
A major part of these affordability calculations is the percentage of the borrower’s disposable income needed for mortgage repayments. MoneyFacts.co.uk reports that this was around 30% of disposable income in 2016, which is unchanged from 2015.
Between 2015 and 2016, average house prices have risen by 7%, but wages in the last year have not risen dramatically. The reason that the rise in house prices has not affected the percentage of disposable income needed for mortgage repayments, is probably due to
the lowering of interest rates. Many lenders are offering rates at less that 2.5%, but for the best rates, borrowers need to pay large deposits.
In 2007, the average cost of mortgage payments was 48% of disposable income, and the long-term average is 35%. The present figure of 30% means that mortgage affordability has improved.
If a mortgage borrower finds that their payments are above 30% of their disposable income, they may be able to reduce this by switching mortgages to one with a lower interest rate. A mortgage broker provides advice on remortgaging and can also discuss mortgage and other insurance protection products that provide the peace of mind in knowing that mortgage repayments will be covered if the mortgage holder is off sick or has an accident.