Mortgage debt in Scotland - good news for FTBs

By Joel Stanier – Financial specialist

First-time buyers (FTBs) in Scotland are finding they need to take on smaller mortgage debts to buy their first home, the Bank of Scotland reports.

The latest Bank of Scotland FTB Affordability Review has revealed that the average price paid by an FTB was affordable for someone on average earnings in almost two thirds (64%) of Scotland`s local authorities.

In the third quarter of 2007, this was the case in just 36% of local authorities.

The term `affordable` is used when the price of the average FTB property is less than 4.0 times the average earnings in that area.

This is known as the `house price to earnings` ratio - a figure that historically stands at 4.0.

Back in the fourth quarter of 2007, this figure reached a peak of 4.69, meaning that property prices in Scotland were beyond the reach of many FTBs. In the first quarter of 2009, after more than a year of falling prices, the ratio is down to an estimated 3.73.

The proportion of disposable earnings required to service mortgage debt has also dropped.

The Bank of Scotland press release states that: `The proportion of disposable earnings devoted to mortgage payments - another affordability measure that includes the impact of interest rate changes - has also fallen significantly due to the combination of the decline in house prices and the cut in interest rates to record lows (from a peak of 39% in 2007 to 26% in 2009 Quarter one).`

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Tags: mortgage debt, debt, mortgage, house prices, Bank of Scotland, affordability, earnings, house prices

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