Halifax Says Affordability has Trebled - By What Measurement

Two interesting reports came out today: the Centre for Economics and Business Research has said that UK house prices have another 8% to fall before a "sluggish recovery" will begin. And the Halifax has said that "housing affordability has trebled for first time buyers". The Halifax said that now first time buyers can pay their mortgage payments out of an average 31% of their disposable income, down from 48% at the peak of the boom. If that is correct then the CEBR would probably be correct as well.

I however cannot believe how different the Halifax's affordability figures are to that of Nationwide's similar index. According to Nationwide, at the peak mortgage repayments were 36% more than the average first time buyers take home pay; mortgage repayments were more than 100% of first time buyers take home pay in all the UK regions.

I have put in a call to the Halifax to see if they can explain why the two would be so different, I will update this report when they return my call.

However, I said that the Nationwide affordability index did not factor in couple's buying together; most first time buyers are newlyweds, newly coupled or simply couples. It is very rare that people buy their first house unilaterally. It is possible that this is why the Halifax affordability index is so different.

If this is the case then the Halifax report is great news: as I have written many articles on how affordability is the biggest influence on house prices, then I must concur with CEBR, not necessarily on the percentage but that prices don't need to fall much further. Fall they will however, because the economic situation and constricted mortgage market will keep transaction levels at a bare minimum which will continue to push prices down. Thus I believe 8% may be a little optimistic, because price falls are likely to accelerate as time goes on and vendor realism becomes more prevalent.

If Halifax says that is not the difference between the two indices, and until I know for sure I must say: the Nationwide index seems to be the most realistic. It tracks with other reports of 2007 that first time buyers were being completely priced out of the market. Spending 48% of take home pay on a mortgage is not priced out of the market; it is making significant sacrifices, which is necessary when most people buy something of such value, under any circumstances.