Investment Property News - Bueno Investments Limited

With low inflation failing to eat into consumer's debt, many are seeing their mortgages suffer, according to a financial group.

Standard measures of housing affordability focuses on initial mortgage payments, but this ignores the real value of debt falls more slowly when inflation is low, Capital Economics said.

Housing affordability is at its most stretched at present, suggesting the risk of a major house price correction is higher than thought, the group said.

Those who an are on average earnings buying an average priced house with a 25-year repayment mortgage taken out in the final quarter of last year would be spending around 32% of their salary on their mortgage over its term, the group said.

And despite initial mortgage repayments being 20% lower than in the mid-1980s, over the whole mortgage term, the loan would cost around a fifth more than one taken out at the height of the late 1980s boom. it said.

A homeowner who took out a similar loan in the final quarter of 1973 would have seen the level of take-home pay absorbed by mortgage repayments halve during the first five years of the loan due to average income growth of more than 13% a year and a fall in interest rates from 11% to 8.5%, it said.

By contrast, it would take 20 years for someone who took out a mortgage at the end of last year to see the proportion of their take-home pay that was needed to pay their mortgage halve, due to slower income growth.

Lifetime affordability measures would never displace standard measures completely, but they showed how the initial mortgage payment was now a more lasting burden on households' finances than in the past, it said.

Copyright © PA Business 2008

http://www.buenoinvestments.com/uk_property_investment.php (UK Property)

http://www.capitaleconomics.com (Capital Economics)