Housing is becoming more affordable

Jennifer McClelland | RSS | Wed, Nov 18 2009 | 0 Comments

In the United States, we know that home prices have fallen dramatically and therefore, housing has become more affordable. In the United Kingdom the same phenomenon is happening. After the Bank of England reduced interest rates in the country to half a percent, affordability of homes has increased since Q3 2007.

In 2008, the median home price in the United Kingdom fell 16% during 2008 and through this year, it hasn’t improved.

When calculating affordability of housing, there are two things that are taken into account: The rate of interest and the average earnings of citizens in that area. Even though unemployment in the United Kingdom is on the rise just as it is in the United States, housing prices seem to be falling at the same rate or even faster in some areas.

In some of the priciest areas of the United Kingdom, the home affordability percentage has increased. In London, the affordability percentage has come down from 56% to 34%. The number is so low that it is actually below the long term average.

The most affordable areas included Copeland in Cumbria, there the affordability percentage of 22% means that the interest rates are low and the disposable income is higher. Of course, there is always “the other side of the coin” where home affordability is still poor. North Cornwall is the “least affordable” area that was surveyed with 63%. South Buckinghamshire came in at 62%.

Even though affordability is on the rise, it can still be difficult for first time home buyers to get the loans they need for mortgages. In the United States, it is awfully difficult for anyone to get a loan, particularly first time buyers who may not have a lengthy credit report. First time home buyers are also being warned against buying a home right now because of the unsteady job market.

Even worse than the job market in the United Kingdom is the threat of negative equity in their homes. No one wants their home’s mortgage to be considered “underwater.” It is something frightening to consider when buying a home and even worse when you know that you’re paying on a mortgage every month that is now more than the house is worth. In this kind of economy, that is not always feasible…which is why many people have defaulted on their mortgages. For example in the United States, many people in California, Las Vegas and Miami all saw this problem. While other areas did witness negative equity issues, these were the worst. In some cases, the mortgage on their home was double what their house was really worth. When someone is faced with that and they have lost their job, I can understand why they don’t feel as though it is affordable to continue paying on their home.

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Tags: rate of interest, home affordability, first time buyers