Long-term and short-term aspirations also need to be thrown into the mix here and some element of usage, stability and desire. This all leads to quite a heady melting pot.
In essence, I’m sure that there have been times in all our lives when we really wanted something we didn’t get or need or actually care about a few months down the line. Then again, there are also things that we will forever cling onto, such as that bike as a child or that car when we got a bit older or even that house when we were even older still.
Mortgage affordability has certainly had its highs and lows over the years. The economic impact and other variables mean that there is a gulf between the two forms of affordability, by which I mean the ability to get or take further steps on the property ladder and measuring affordability against current levels of mortgage payments.
When addressing one element of this topic, a recent Centre for Economics and Business Research (CEBR) think tank suggested that affordability for first-time buyers will reach an eight-year high this year, thanks to low mortgage rates and weakening house price growth.
It expects the housing market recovery to stall in 2011, leaving house prices 1.7% lower by the end of the year, which it believes could be good news for first-time buyers if they can come up with the appropriate deposits required by most lenders.
The CML recently stated those aged under 30 are now heavily reliant on parents and other relatives for financial support. It estimated that, in 2005, 38% of first-time buyers aged under 30 required help with their deposit. By 2009, this had reached an estimated 84%.
The CML also revealed that the typical age of first-time buyers who did not receive assistance and were unlikely to be former owner-occupiers returning to the market increased from 28 in 2005 to 31 in 2010.
Addressing these issues is not a simple one, but there is some cold comfort for those who have actually been able to negotiate their way onto the ladder, with more competition available in the market place compared to a year ago and more schemes available to help first-time buyers from various lenders.
New research by Barclays suggests that general mortgage affordability has hit its best level for ten years. After assessing more than one million customers’ accounts, the study found that, on average, people paid out 15.4% of their take home pay at the end of December 2010 to cover their monthly mortgage payment, the lowest level since analysis began in 2001.
A poll of more than 2,500 homeowners also found that 13% say they can easily afford their current mortgage repayments and are not worried if interest rates rise. Meanwhile 39% class themselves as comfortable, with some room for manoeuvre, and 28% are stretched but still have disposable income available to help them navigate a rising interest rate environment.
Of those who said their mortgage was less affordable than a year ago, more than a third (36%) cited lower salaries as the cause, while an additional 29% said their other outgoings had increased.
Of course, it stands to reason that, with interest rates at an historic low, this type of mortgage affordability has improved. However, it is crucial that homeowners are not complacent.
When asked specifically about coping with rising interest rates, it was great to hear that 77% either already have a plan in place to manage increased monthly mortgage repayments or say they will be unaffected as they are on fixed rates.
Yet, homeowners who are not already thinking about their mortgage certainly need to be.
This might well be something as simple as remortgaging for which activity has increased in recent months. Barclays estimates there are still around 800,000 borrowers sitting on their current lender’s SVR who could benefit from escaping and switching to a more competitive mortgage deal.
Barclays has certainly experienced some uplift in the remortgage market fuelled by an increased desire among lenders for this type of business, resulting in better rates and stronger consumer appetite.
This has led to greater opportunities within the intermediary market, but more still needs to be done in terms of lenders continuing to push innovation and competition.
In addition, intermediaries need to ask themselves if they are currently doing enough to help people that might be in a position to benefit from such deals that are currently available.
The public debate raging between the Monetary Policy Committee members over the direction of the base rate has encouraged many homeowners to take advantage of the rates on offer. With a potential hike in interest rates imminent, now might well be the time for clients to lock into a deal to help affordability levels lessen even further.
David Finlay is intermediary business director for Barclays
