Scottish homeowners pay out fifth of disposable income on mortgage

This proportion has close to halved from 2007.

Disposable income spent on mortgage payments in Scotland is 9 per cent less than the rest of the UK (29 per cent) making it the second most affordable place after Northern Ireland (19 per cent) in the UK. Mortgage affordability has only marginally deteriorated (19.7 per cent in 2016 to 20.1 per cent in 2017), despite the first interest rate in recent years and house prices in Scotland rising by 7 per cent in the last 12 months.

Five out of the ten most affordable Local Authority Districts (LAD) in the UK are in Scotland. Inverclyde is now Scotland’s most affordable location and is the UK’s second most affordable after Copeland in North West England.

Inverclyde made the jump from fifth most affordable at the end of 2016 to Scotland’s most affordable with mortgage payments taking up 15.7 per cent of disposable income. North Ayrshire (15.9 per cent), West Dunbartonshire (16.2 per cent), Renfrewshire (16.4 per cent), and East Ayrshire (16.6 per cent) also feature in the UK’s ten most affordable locations.

Over the last 12 months we have seen a 7 per cent increase in house prices in Scotland which has led to a marginal decrease in mortgage affordability.. Despite the recent increase in the Bank of England base rate at the end of last year there has been little impact on mortgage rates so far. However, if rates were to rise over the course of 2018 this could impact the 46 per cent of UK households who have a mortgage either on a standard variable rate or tracker rate with potentially higher payments.

Despite the very slight decrease (0.4 per cent) in affordability, the percentage of disposable income typically spent on mortgage payments has nearly halved compared to a decade ago. At the end of 2007, mortgage payments typically cost Scots 38 per cent of their disposable income and now they pay 20.1 per cent with an average monthly mortgage payment of £442. This is £227 less than the UK average of £669.

Ricky Diggins, director at Bank of Scotland, said: “Despite the base rate towards the end of last year, it was the rise in house prices that had a slight impact on mortgage affordability for homeowners in Scotland.

“However even with the slight decrease in affordability over the last year, the average amount that homeowners spend on their mortgage payments as a proportion of disposable income is significantly less now when compared to ten years ago and Scotland is typically more affordable when compared to the rest of the UK.”

Affordability has improved significantly in all Scottish LADs since 2007. Mortgage payments as a proportion of average earnings have fallen by at least 15 per cent in 28 out of 31 areas. The Shetland Islands has seen the smallest change in mortgage affordability since 2007, improving by 6.8 per cent during that time.

The largest improvement in mortgage affordability was seen in Inverclyde where mortgage payments as a proportion of disposable earnings fell by 23 per cent over ten years (38.7 per cent to 15.7 per cent). The least affordable location in Scotland is East Dunbartonshire where mortgage payments take up 24.7 per cent of average monthly disposable income. This has increased by 1.8 per cent since this time last year, other areas to see deterioration are East Renfrewshire (2.8 per cent), Scottish Borders and Clackmannanshire (both 2.2 per cent).

The area which has seen the biggest decrease in mortgage affordability is East Renfrewshire which is 2.8 per cent less affordable than a year ago, making mortgage payments as a proportion of average earnings 24 per cent.