UK property 'still affordable'

Most people can still buy - at a stretch

Buying a house is still well within the means of most Britons, despite three years of double-digit property price growth, according to new research.

Mortgage lender Cheltenham & Gloucester (C&G) said low interest rates meant that mortgage repayments still accounted for a relatively low proportion of take-home pay.

The company said homeowners spend on average 33.4% of their income on mortgage repayments, down sharply from 71.3% at the height of the last house price boom in 1990.

Meanwhile, homeowners who split the cost by buying as a couple spend just 18.8% of their pay on housing costs, compared with 33% in 1990.

"Despite rapidly rising house prices, today's very low interest rates, along with modest earnings growth, are holding affordability stable," said C&G managing director Jon Pain.

Pre-emptive action

The Bank of England has over the past two years cut interest rates to a 40-year low of 3.75% in an effort to shield the UK economy from the global economic downturn.

The rate cuts have kept the economy afloat by shoring up consumer spending, but have also fuelled a surge in house prices, prompting fears of a property market crash comparable to the slump of the early 1990s.

A crash would leave many homeowners paying off mortgages greater than the value of their homes, triggering a collapse in consumer confidence and spending, and stifling economic growth.

The main UK property market monitors say house price growth will slow sharply this year, but do not believe there will be a crash.

C&G said that with no increase in interest rates expected for at least 18 months, house prices look set to remain affordable for now.

But it added that house prices could still slow in the months ahead.

"The inevitable slowdown - or even correction - has been postponed by exceptional circumstances," said Mr Pain.