Mortgage affordability begins to fall

Meeting mortgage repayments is becoming more of a squeeze but the chunk of income people in Britain spend on their mortgage is still comparatively low, according to a report published by lender Cheltenham & Gloucester today.

On average, British joint income households spend ?17.60 out of every ?100 they earn on mortgage payments, compared with ?27.70 in 1991, but up from a bargain ?12.60 in 1996.

However, average affordability is beginning to creep up in some areas. In the west Midlands for example, homeowners have seen the amount they spend on mortgages edge upwards from 15.4% in the first quarter of 2003 to 17.10% in the third quarter.

People with joint incomes in Scotland spend the smallest proportion their income on mortgage repayments at just 12%, while homeowners in the London and the rest of the south-east hand over the biggest portion, spending on average 19% of their joint income on their home loan.

According to C&G's managing director, Jon Pain, the squeeze may get tighter due to rising interest rates. "The head of steam the housing market has built up will simply have to be released this year, as affordability continues to be stretched even further," he said. "Although we're not expecting to see a market blow-out, the unbalanced relationship between house price rises and earnings will force a slow puncture in the market which should cause it to deflate throughout 2004.

"House price inflation is slowing - which means affordability isn't being stretched at quite as rapid a rate - but combine this with predicted interest rate rises, and the outlook for affordability will not be as positive by the end of the year."