For those of us who are prepared to be cautiously optimistic, the most recent analysis of house prices provides some further evidence of a more stable housing market. Figure 1 below graphically illustrates the impact of Northern Ireland’s housing market “correction” on house prices and transaction levels. And although the figures for 2011 are estimates based on the first three quarters they do confirm a greater degree of stability, with a rising number of transactions and only a small percentage decline in average house prices. Figure 1: Annual average house price and number of transactions in Quarterly House Price Index samples, 2004-2010
of a typical ‘affordable’ house: a home with an open market price equivalent to the first quartile (25th percentile) house price for all the dwellings sold during 2010, and previously during 2008. The resulting “affordability gap” provides a useful indicator of how the degree of difficulty experienced by notional first time buyers in repaying their mortgage has changed over time.
Key findings
• In 2010 the typical affordable home in Northern Ireland was sold for £100,000, compared with almost £150,000 in 2008.
• In 2010, households on a median income (£21,000) were able to service mortgage payments for a house costing approximately £147,000.
• The difference between the price of an average affordable home and median income households’ capacity to
service mortgage payments meant that there was a ‘positive’ affordability gap of £47,000 in 2010.
• The position in 2010 contrasted significantly with that in 2008, when households were only able to afford a home priced at £97,000. The lower price of an ‘affordable’ home in 2008 reflected both the lower household incomes and higher loan-to-value ratios at that time, and resulted in a negative affordability gap of -£53,000.
• The significant shift in the relationship between house prices and incomes between 2008 and 2010 is also reflected in the proportion of homes sold at or below the ‘affordable’. In 2008, only three per cent of homes sold in Northern Ireland were considered to be an affordable price, but by 2010 the proportion had increased to 58%.
Conclusions and challenges
The picture emerging from the most recent analysis of affordability in the Northern Ireland housing market is encouraging for first time buyers. By the first quarter of 2011, house prices had returned to their 2005 levels and the affordability index shows that, even in 2010, significantly lower house prices and slightly higher incomes meant that median income households were in a much better position to meet the mortgage costs on an affordable home. However, he much more stringent lending criteria being applied by banks and building societies (including lower loan-to-value ratios), continuing labour market uncertainty, the relatively high incidence of negative equity in Northern Ireland all continue to militate against higher transaction rates and improved opportunities for first-time buyers and investors.
Joe Frey
Head of Research, NIHE
Email:joe.frey@nihe.gov.uk
Post a comment