Homeowner Loan Affordability Improves
Over the course of the past couple of years or so, there has been a shift in emphasis when lenders are considering whether or not to offer a potential buyer a new homeowner loan or mortgage.
Whereas in the past lenders would only look at income multiples, usually offering three or four times a person’s salary, now lenders generally tend to focus more on the affordability of the loan once it has completed and the borrower’s ability to be able to manage the monthly repayments on an ongoing basis, not only initially, but also over the longer term.
According to the latest survey from the Halifax, there has been a significant improvement in the level of affordability of both houses and homeowner loans sine the middle of 2007, when property prices were at their peak and interest rates on loans were also much higher than they currently are. The survey has been based on a single person buying a property and therefore only takes one wage into account, but in 2007, the average home buyer would have spent around 48 per cent of their income on a homeowner loan, whereas by the first quarter of this year, the figure has fallen to just 31 per cent.
The main reasons for this improvement in affordability are reasonably obvious; firstly house prices have fallen on average by around 16 per cent over the course of last year and are still continuing to fall slowly. Secondly, potential buyers now require a much larger deposit to be able to purchase a house, typical loan to value ratios are now in the 75 to 80 per cent region, rather than the 85 to 95 per cent loan to value ratios of previous years.
Also interest rate on loans have fallen dramatically, although this should not be considered as a long term benefit for a potential buyer, as rates are likely to start going back up again once the economy recovers, so anyone buying a property at the moment should allow for their loan repayments to increase dramatically in the not too distant future.
