It’s Tough For First-Time Buyers
For low-income earners the cost of a first home would take all their after tax pay. However, affordability in terms of mortgage repayments has improved in the last few months. One mortgage provider has cut some fixed rates.
First-time buyers are finding it no easier to get onto the property ladder these days. The Royal Institution of Chartered Surveyors (RICS) reports that a first-time buyer couple on a fairly low joint income now has to save their take-home pay for a whole year to be able to buy a first home. The figures stacks up to £27,738 just in the fees they have to pay up-front.
Despite a decrease in average house prices which has helped with overall affordability, the housing market is getting further out of reach as the credit crunch has taken hold, and, as mortgage approvals are declining, RICS does not see the situation improving during the rest of 2008. Indeed, they see the path to home ownership becoming more blocked. The average mortgage for a first-time buyer was £113,500 in May, according to the Council of Mortgage Lenders.
Those who can find a large deposit will benefit from lower mortgage interest rates, and therefore their monthly payments will be lower, but with inflation taking fuel and food bills ever-higher, their finances will remain stretched.
The estimate by RICS is that a first-time buyer couple would be earning £27,316 after tax each year. All that would disappear in house-buying costs, such as the deposit and other fees. This is 21% more of their income than they would have needed back in 1996.
Perhaps not surprisingly the south-east, south-west of England, and top of the list, London, were the most difficult areas for first-time buyers to gain a foothold on the property market, whereas Scotland, north-east and north-west of England were the most accessible.
With house prices going down and deposits going up, affordability has actually improved in the last three months for low-income earners. In the first three months of the year they would have needed 37.2% of take-home pay for mortgage repayments, but in the last three months this has come down to 34.5%. The peak was at the end of 1989 when it was 46.5%.
Some good news on the mortgage market this week: Woolwich (part of Barclays) has cut some of its fixed rate deals by up to 0.3%.
