Lower income borrowers given boost on to 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.

Monthly comparison of typical salary, deposit and LTV for purchase applicants

Low deposits were accompanied by rising loan-to-values (LTVs): 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.

Improved mortgage affordability and availability provokes rush in mortgage applications

Improved product affordability has helped to speed up mortgage activity following a slow end to 2014.  In December 2014, total mortgage applications had declined by 28% since the previous month. In contrast, total applications increased by 18% in the month to March. Month-on-month, purchase applications were up 16% and remortgage applications were up 21%.

Mortgage affordability has improved not only through rising average LTVs, but also consistently falling mortgage rates. Data from Moneyfacts.co.uk shows that both average two year and five year fixed rates have reached new record lows, at 3.06% and 3.60% respectively. Annually, two year fixed rates have fallen by 55 basis points (bp), while five year fixed rates have fallen 42bp.

In the wider market, the latest sub-2% five year fix from HSBC suggests mortgage rates still have some way to fall as inter-lender competition heats up. Two year trackers offer the lowest rates overall, at 2.11% in March, down by 68bp annually.

Average mortgage rates (from Moneyfacts.co.uk)

Mortgage products are not only increasingly affordable – product availability has also improved. The total number of mortgage products surpassed 13,000 for the first time in March since the Index began recording this data in 2009, rising to 13,525 from February’s 12,940. Year-on-year, this is an increase of 22% (11,126).

Brian Murphy, head of mortgage lending at Mortgage Advice Bureau, comments: “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.”