Mortgage affordability in UK no worse than other countries
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A study by Capital Economics has found mortgage affordability in the UK is on a par with other countries.
It has analysed mortgage affordability in nine major western economies, Australia, Denmark, France, Ireland, Netherlands, Spain, Sweden, the USA and the UK.
The average monthly cost of a new repayment mortgage in these countries over the last 40 years is 48% of take-home pay.
On an internationally comparable basis, average mortgage costs in the UK have been 50% of take-home pay over the last 40 years..
Spain is the most affordable at 39% and Sweden the least affordable at 56%.
Paul Diggle, economist and author of the report says one might expect the high population density and apparent structural undersupply of housing in the UK to mean that people in the UK have spent a higher proportion of their earnings on mortgages, but its research contradicts this.
He says: “Our analysis shows that over the past 40 years, long-run average UK mortgage affordability is unremarkable in an international context. To our minds, this casts doubt on the popular view that a chronic undersupply of homes in the UK supports high prices.”
Out of the nine countries researched, between 1970-2010 Sweden was the most expensive in terms of affordability, followed by the Netherlands, France, Denmark, the UK, USA, Australia, Ireland and Spain.
Mortgage affordability in the UK is currently at only 44% of take-home pay, compared with the Netherlands at 64% and the USA at 25%.
The research found that mortgage interest rates are the primary driver of a country’s level of mortgage affordability.
But one factor which does not appear to explain differences in affordability measures over the past 40 years is difference in the level of house prices in relation to earnings.
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Readers' comments (5)
chris gardner | 21 Oct 2010 4:01 pm
Nice piece of work, maybe the regulator will take note, although i suspect not.
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chris gardner | 21 Oct 2010 4:03 pm
in my last comment i also meant to say that the general cost of living in the UK is very low compared to mainland europe - clothes, food, and even cars are absurdly cheap by euro standards. Seems to me that the Uk is probably a cheaper place to live than we may think??
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Michael Price | 22 Oct 2010 9:30 am
Is Australia a 'western economy'?
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Grey Haired Underwriter | 22 Oct 2010 9:46 am
So there has been an enormous amount of irresponsible lending and we have been over extending those poor unknowing borrowers? The truth will always out in the end and evidence that the lenders do try to be reasonable in their assessments.
It would be good for the Regulator to take note .......but of course none of them have ever lent on a mortgage in their lives so they wouldn't understand the concept of prudential lending if it slapped them in the face.
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jools | 22 Oct 2010 11:55 am
ah, but what if you apply a payment at 6% on a repayment basis when interest only bites the dust?
'average affordability over the last 40yrs' not exactly cutting edge, up to the minute stuff is it?
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