Home movers in Scotland have increased the amount they borrow to buy a home by £8,000 since the first quarter of this year. First time buyers borrowed, on average, £5,000 more than they did in the first three months of this year.
Stats released today by the Council of Mortgage Lenders show that the average size of a mortgage in Scotland grew by around 6.5% for home movers and 5.5% for first time buyers in the last three months. That’s pretty much in line with the average increase in prices over the same period. Registers of Scotland says that prices rose by 5.7% in the last quarter (with significant regional variations).
So, are rising house prices pushing Scottish buyers in to taking out increasingly unaffordable loans? Er, no.
The same report showed that average mortgage payments relative to pre-tax income actually fell a little in the last quarter. The proportion of gross income taken up by mortgage payments for first time buyers in Scotland fell slightly from 16.9% to 16.7% – well below the national average of 19.4%. For home movers, mortgage payments now account for 17.2% of income compared to 17.3% three months ago.
So, how is it that buyers are borrowing more without sacrificing a greater proportion of their income?
Firstly, interest rates are low and competition between lenders is helping to keep them there. Mortgage Strategy, the leading trade publication for the industry, reports that banks are cutting mortgage rates as competition for credit worthy borrowers heats up.
Secondly, it looks like incomes have grown. The CML reports that the average household income of a first time buyer has risen by almost £2,000 between the first and second quarters of the year from £30,700 to £32,100. The same is true for home movers whose typical household income has grown from £47,400 a year to £49,100. As a result, the ratio of house prices to incomes in Scotland has remained virtually unchanged.
True, not everyone is seeing their income rise and no doubt buyers will tend to be those who are seeing an improvement in their financial circumstances. Nevertheless, and for all the talk of an unsustainable house price boom, there’s no sign yet that buyers in Scotland are experiencing an ‘affordability crunch’.