First-time buyers fail to benefit from improved affordability

Monthly mortgage payments as a proportion of income are now nearly half of 2007 levels, yet affordability is still cited by over 50% of first-time buyers as the main barrier to entry.

Research by Halifax reveals the proportion of new homeowners' disposable income going towards to mortgage payments has fallen from a peak of 50% in June 2007 to 28% in June 2010. This is well below the 34% average over the past 25 years.

The marked improvement in monthly mortgage costs has been a result of a combination of lower house prices and interest rate reductions. However, only 35% of first-time buyers are taking advantage of the situation.

First-time buyer numbers for H1 2010 (94,600) are half that for the same period in 2007, but up 28% on H1 2009.

In addition, 94% of first-time property purchases are now exempt from stamp duty and 54% of first-time buyers said this has helped them purchase their home.

Despite the tightening of lending criteria since 2007, the market appears to be improving and just 3% of first-time buyers said a lack of suitable products has prevented them buying.

Halifax revealed eight out of ten first-time buyer mortgage applications were approved in the first half of 2010.

The average deposit put down by a first-time buyer has also remained unchanged as a percentage of the purchase price since early 2009. In Q2 2010, the average deposit from first-time buyers was £30,380, equivalent to 22% of the property price.

A 10% deposit on an average first-time buyer property today is £13,940.

Stephen Noakes, Halifax commercial director for mortgages for Halifax, says: "It is important that first-time buyers understand that whilst there are still challenges in raising deposits, other market conditions are more positive.

"Affordability has significantly improved, meaning the amount of a typical first-time buyer's monthly pay packet that needs to be dedicated to their mortgage is now below the 25-year average and, importantly, despite perceptions, eight out of ten first-time buyer mortgages are approved."