Price falls put city pads within reach

Falling house prices have made properties in the UK’s major cities more affordable than they have been for three years, according to new research. Buyers with a budget of £250,000 can now purchase all property types in half of the UK’s 10 biggest cities, compared with just two cities in 2007.

Prospective property buyers with £250,000 to spend are now able to afford a flat, terraced, semi-detached or a detached house in Birmingham, Sheffield, Bradford, Liverpool and Manchester. In 2007, £250,000 would only have stretched to all property types in Bradford and Liverpool, according to Halifax, the mortgage lender.

Edinburgh’s affordability has also improved over the last three years – £250,000 will now buy a flat or a semi-detached property there, compared with just a flat before.

London is the only major UK city where the average price of all property types remains above £250,000 as house prices in the capital have fallen less sharply.

But, even after this improvement in affordability, prospective homebuyers can be prevented from climbing the property ladder due to tighter mortgage availability – particularly for first-time buyers.

Since the credit crunch, mortgage lenders have become more conservative with their lending.

In August 2007, there were 829 mortgages on the market that required just a 10 per cent deposit, compared with just 202 today, according to Moneyfacts.co.uk, the rate comparison service. Nationwide Building Society calculates that, as a result, the average house deposit has increased from 10 per cent of the property’s value to 21 per cent.

However, Northern Rock has this week launched mortgages for up to 90 per cent of a property’s value – the first time since the credit crunch that the state-owned lender has offered such high loan-to-value mortgages.

Skipton Building Society has also launched a range of 90 per cent and 95 per cent loan-to-value mortgages, which will be distributed exclusively through its subsidiary, the Connells Group.

The return of the 90 per cent mortgage is good news for first-time buyers, mortgage brokers say, as it increases the options available to this part of the market. More competition is also likely to drive down rates.

But, even though an increasing number of lenders are offering 90 per cent loan-to-value mortgages, securing one of these deals can be extremely difficult, says Melanie Bien of Private Finance, the mortgage broker.

“Credit scoring is much tighter on 90 per cent LTVs than on those with lower LTVs, while the rate of interest can also be much higher – usually a couple of percentage points’ difference,” she says.

In addition, lenders offering high loan-to-values will typically have limited funds for these deals. HSBC has had a selection of 90 per cent deals over the last year but the bank’s results this week showed that its average loan-to-value for new mortgage business was 54 per cent.

Mortgage brokers point out that Northern Rock’s rates are not market leading. Co-op has a five-year fix at 5.89 per cent with a £999 fee, compared with Northern Rock’s rate of 6.59 per cent.

“Someone borrowing £180,000 would pay £1,246 per month to Northern Rock or £1,166 per month to the Co-op – so, once you factor in the cost over five years, you would save £3,801 by opting for the Co-op,” says Bien.