Falling prices mean that houses are now at their most affordable level for more than six years.
Data from mortgage giant Halifax shows that the proportion of local authorities where housing is affordable for a
first time buyer (FTB) has more than trebled from 6% in mid-2007 to 21% in the first quarter of 2009.
During the same period, the house price to average earnings ratio – a key factor in affordability - has declined from 5.84 to around 4.34, a fall of 26%.
Furthermore, the proportion of disposable earnings devoted to mortgage payments has also come down significantly.
FTBs still staying away
All these figures should point to an increase in the number of FTBs being tempted into the market. However, latest figures from the Council of Mortgage Lenders show that the number of FTBs in February 2009 was actually 46% lower than in February 2008.
Of course the two main reasons behind this has been the lack of available
mortgage finance and an unwillingness to purchase an asset that is falling in value.
"Conditions in the housing market are likely to be tough during the remainder of 2009 despite the improvements in affordability,” says Halifax housing economist Martin Ellis.
“Increasing unemployment, low consumer confidence and the constraining effects of the continuing dislocation of the financial markets on the availability of mortgage finance are all likely to exert downward pressure on the market over the coming months.”
Things are looking brighter
While it certainly looks bleak at the moment, things may change considerably in the not too distant future.
The
mortgage market is finally thawing for starters, with rates coming down and the number of loans being approved rising every month.
Add to this the stamp duty holiday and the fact that house price falls are showing signs of slowing (and
may actually rise again in 2009) and it's clear that buying a home may not be such a terrible idea.
Not yet time to buy for everyone
So should you climb on the property ladder? Well, that depends greatly on your individual circumstances.
Having a large deposit is essential in the current environment. As we mentioned before, lending costs are coming down (you can get a
fixed rate deal at just 3.19%), but this is only available to buyers with a sizeable lump sum of between 25% to 40%.
For those with a deposit of just 10%, you will be stuck with a rate of over 6% - if you are even accepted for a mortgage at all.
Another important factor when buying a house in the current market is whether or not you are able to secure an attractive discount on the property.
Remember that house prices will fall at least until the winter, so you should look to protect yourself against this.
