Scottish homeowners UK’s best off for mortgage affordability

Mortgage payments were 19.8 per cent of disposable earnings, compared to 29.7 per cent for the UK.

The most affordable Local Authority District (LAD) in Scotland is also the UK’s most affordable. Mortgage payments in West Dunbartonshire sat at 15.4 per cent of disposable income for this area in Q4 2016. North Lanarkshire (15.6 per cent), East Ayrshire (14.6 per cent), Renfrewshire (16.6 per cent), Inverclyde (16.8 per cent), Stirling (17.0 per cent) and Falkirk (17.2 per cent) also dominate the UK’s ten most affordable LADs.

Although the majority of Scottish LADs have seen a slight increase in the amount of earnings devoted to mortgage payments when compared to Q4 2015, mortgage affordability in Scotland has improved by 17.5 percentage points since reaching a peak of 37.3 per cent in Q3 of 2007. Historically low mortgage rates have been the main driver behind the significant improvement in affordability since 2007.

Despite average Scottish house prices growing by 9 per cent in the past year, mortgage affordability in Q4 2016 rose only marginally from a year earlier, rising from 19.4 per cent to 19.8 per cent. However, this is comfortably below the long-term Scottish average of 28.5 per cent. This proportion has stayed low due to further falls in mortgage rates during 2016, from an average of 2.49 per cent in Q1 to 2.17 per cent in Q4.

There have been improvements in affordability in all Scottish LADs since 2007. Mortgage payments as a proportion of average earnings have fallen by at least 15 per cent in 21 areas. East Dunbartonshire has seen the smallest change in mortgage affordability since 2007, falling 12.8 per cent during that time.

The largest improvement in mortgage affordability was seen in Inverclyde where mortgage payments as a proportion of disposable earnings fell by 20.1 per cent since 2007 (36.9 per cent to 16.8 per cent). Although they are two of the least affordable LADs in Scotland, East Lothian and Midlothian, were close behind, having both reduced by 18.2 per cent over the same period.

Mortgage payments are at their lowest as a proportion of disposable earnings in Scotland (19 per cent), Northern Ireland (20 per cent), North (23 per cent) and Yorkshire and the Humber (23 per cent) and the North West (24 per cent).

Payments are highest in relation to earnings in Greater London (49 per cent), the South East (41 per cent) and the South West (34 per cent). London is the only region where current rate is above its long-term average.

The proportion of disposable earnings devoted to mortgage payments by a first-time buyer in Scotland stood at 23 per cent in 2016 Quarter 3; this is below the long-term average of 27 per cent. This is a substantial improvement since 2007, when this figure reached a peak of 36 per cent.

Record low mortgage rates have helped reduce this cost as a proportion of homemovers’ overall outgoings. In Quarter 4 2016, mortgage payments in Scotland accounted for 28 per cent of homemovers’ disposable earnings – below the long-term average figure of 35 per cent. This is a substantial improvement since the peak in 2007, when average mortgage outgoings accounted for 48 per cent of homemovers’ disposable income.

Graham Blair, mortgage director at Bank of Scotland, said: “Scottish homeowners have seen a decent improvement in housing affordability since 2007 as record falls in mortgage rates have offset higher house prices. As a result mortgage payments account for a lower proportion of disposable earnings than anywhere else in the UK.

“The significant reduction in mortgage payments by a typical borrower has resulted mostly from record low rates that have provided monthly savings of, on average, around £225 when compared to payments in 2007.”