First time buyers face more difficulty

It is now almost impossible for a low income couple to become home owners in Great Britain according to the latest accessibility and affordability indices from the Royal Institute of Chartered Surveyors (RICS).

A first time buyer couple, earning lower quartile earnings (totalling £27,516 after taxes), will now have to save over 100 percent of their joint take home pay, to build up the £27,738 needed for the up front buying costs on a typical home (including the deposit, fees and stamp duty). This equates to a substantial rise from the low point of 21 percent of income required in 1996.

This worsening accessibility recorded by RICS has been driven by the reductions in loan-to-value ratios that lenders are offering buyers, as well as the continued burden of stamp duty and the other costs of buying a home. Lenders are forcing would-be buyers to put up more money for deposits and given that real income growth has stagnated, getting onto the housing ladder is now only slightly below the all time worst level seen in Q3 2004.

However, affordability has improved for those lucky enough to be able to access the market. A couple on lower quartile incomes now has to spend 34.5 percent (down from 37.2 percent in Q1 2008) of their combined take home pay to service their mortgage, significantly below the all time high of 46.5 percent in Q4 1989. The improvement in affordability can be attributed to falling prices and tighter lending conditions. Smaller mortgages mean smaller repayments in a time when interest rates are relatively low.

London is still the most difficult place for a couple on lower quartile income earnings to access the housing market. In London (133 percent of take home pay), the South East, Eastern region and South West, couples have to save over 100% of their combined take home pay to reach the levels necessary to get a foothold on the property ladder. The North East (72.9 percent) is the most accessible region followed by Scotland (74. percent) and the North West (76.8 percent).

London is also the region with the worst affordability levels. First time buyer households have to spend the highest proportion (45.6 percent) of their after tax income on mortgage payments compared to only 26.4 percent in the North East region.

RICS senior economist David Stubbs, said: “Access to the housing market has deteriorated as the credit crunch has taken hold of the mortgage lender sector. With mortgage approvals declining, the picture does not look like improving in the latter part of 2008 and first time buyers will find their path to home ownership increasingly blocked.

“Those who are able to access the housing market, will find that a bigger deposit will mean that mortgage repayments are reduced but with real incomes stagnating this will seem like light relief only. Homeowners’ finances will continue to struggle with rising food and fuel costs making the burden of mortgage repayments even more difficult.”